Have questions? Get in touch with a Jovio Real Estate Specialist.

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3 Steps You Need To Take Before Buying a Home

January 11, 2019
Real Estate

Ready to take the plunge into homeownership? Before you dive head first into your home search, there are a few important steps you should take to prepare yourself. From getting your finances in order to determining what type of home you want, you'll need to get these items out of the way before you start your search.

Prepare Your Finances

Check Your Credit Score

When it comes to preparing your finances, your credit score is at the top of the list. Lenders use your credit score to determine how capable you are of repaying a mortgage. If your credit falls below a certain amount, you may struggle to qualify for a loan. Not only that, but your score will have a direct impact on your interest rate. A higher credit score means a lower interest rate, and a lower rate means lower monthly payments.

So, how do you know if your credit score is up to par? Generally, a credit score between 680 and 720 is considered good. If you fall anywhere above 720, your credit score is considered excellent, and you’ll have the best chance at obtaining the lowest interest rate on your mortgage. On the other hand, if you have a credit score under 640, you’ll likely want to improve it before you apply for a conventional mortgage.

If you’re planning on buying a home in the next few months, you’ll want to avoid doing anything that might negatively impact your score. That means hold off on purchasing a car, financing new living room furniture, or opening a new line of credit. It’s wise to also avoid extending credit on existing accounts, which can sometimes dramatically affect your credit.

Free tools like Credit Karma and FreeCreditReport.com are a great resource for checking your credit. But the best way to check your score is by requesting a credit report from different credit bureaus: Equifax, Transunion, and Experian. You’re entitled to one free report every 12 months, which you can request through AnnualCreditReport.com.

Once you’ve obtained your credit report, you’ll want to check that everything looks good and error-free. Be on the lookout for incomplete personal information, inaccurate account histories (such as late payments), or accounts that incorrectly list you as an account holder. Is your credit in great shape? Before you run to the bank, make sure you’re financially ready to buy.

Save for a Down Payment

In most cases, when you buy a home, you’ll need to have a down payment to put towards your purchase. Although there are loan programs which allow you to put zero down, traditionally, buyers will put down 20%. We recommend aiming for a down payment of at least 10%. But be aware that you might still be on the hook to pay for private mortgage insurance (PMI) until you’ve reached 20% equity on your home. It’s also important to note that guidelines for loan programs change often. So it’s always best to consult with a loan professional before making any assumptions about how much you'll need for your down payment.

The best thing to do is to assess how much money you have saved up for a down payment and avoid emptying your savings account or borrowing from your retirement account. You should hold onto these funds in case of an emergency and to support your lifestyle in retirement. If you’re short on down payment money, keep saving. Set aside money in a high-yield savings account or a money market account. By doing so, you’ll ensure your money keeps growing while you’re working towards your savings goals.

It's important to focus on saving for your down payment, but don’t forget about closing costs. Closing costs are fees that are due once you’ve closed on your home, which pay for attorney fees, courier fees, appraisals, and inspection costs. Closing costs are often 2-5% of the total purchase price of the home (but when you partner with Jovio, you’ll get 1% cash back to help you cover the costs). Be sure to save up for these costs separately from your down payment savings.

Gather Your Documentation

The last step before starting your search for a lender is gathering important documentation. When you start meeting with mortgage lenders, they’ll want you to hand over documents to prove your income and ability to repay a loan. These documents include your paystubs, tax returns, W-2s, and bank statements. Don’t get caught off guard. It’s best to have these items prepared before you start shopping for a lender.

Find a Realtor and Secure a Mortgage

Calculate How Much You Can Afford

When you’re planning to buy a home, it’s important to understand just how much you can afford. Consider how much you have saved up for a down payment, your expected interest rate, monthly expenses, and your debt-to-income ratio.

Most lenders will abide by what’s known as the 28/36 rule. It states that, as a general rule of thumb, your total monthly expenses should be no more than 28% of your gross monthly income. Your monthly expenses include things such as your mortgage principal and interest, taxes, and insurance.

In addition to that, your monthly debt shouldn’t exceed more than 36% of your gross monthly income. This is more commonly referred to as your debt-to-income ratio. Your monthly debt includes credit cards, student loans, and car payments.

Following the 28/36 rule is a reliable way to calculate how much you can afford, but don’t forget about the possibility of unforeseen circumstances. For instance, if you lose your job or have a large unexpected expense. Even if you meet the 28/36 rule, it’s wise to be conservative so that you’re confident you can meet your mortgage payment month after month.

Choose a Real Estate Agent

There are a few key qualities to look for when choosing a real estate agent to help buy your home. As you talk to agents, ask yourself:

  • Do they understand exactly what you’re looking for in a home?
  • Are they familiar with the area you're looking in?
  • Do they have the necessary tools to be alerted when a house goes on the market (or even before)?

Having an agent that understands your criteria and is knowledgeable about the market can help you better navigate your home search.

Not only should your agent be knowledgeable, but you should be confident in their ability to be out there working for you. A buyer’s agent should actively search for properties that meet your criteria, present you with options you like, schedule showings quickly, and most importantly, negotiate on your behalf.

The most important quality to look for in an agent, though, is trust. You’re going to be spending a lot of time with this person, so make sure it’s someone you feel comfortable with and are confident can help you buy your dream home. Your agent should always put you first and never pressure you into something for the sake of a commission (did you know Jovio agents don’t work for commissions?).

When it comes to choosing the best agent for you, do your research and ultimately, trust your gut. If you’ve done your due diligence and feel comfortable and confident in their ability to get the job done, you’ve found a great partner.

Get Pre-approved

There are a variety of lenders you may encounter, including credit unions, large commercial banks, local banks, and many others. Before you go to get pre-approved for a loan, it’s a good idea to shop around and compare quotes from a few different lenders. While the lowest rate is an important factor in choosing a lender, you should also consider things such as fees and terms, the lender’s communication preferences, and how approachable they are.

As you research lenders, you may see the terms pre-qualification and pre-approval used interchangeably, but there is a difference between the two, and it’s one you should understand. First off, it’s important to know that neither guarantees you will get a mortgage. 

Pre-qualification is the first step in the process during which a lender will review basic information such as your income, assets, and debt to determine if you meet their lending standards. In addition to being helpful for the lender, this information can give you an idea of the mortgage amount you qualify for.

Pre-approval is the next step in the process. At this point, you’ll have to submit a formal application and additional documentation related to your finances. The lender will then complete a more comprehensive review of your credit and finances and provide you with a specific loan amount.

Determine What You Need and Want In A Home

Wants vs. Needs

Once you’ve been pre-approved for a loan, you’ll have a solid idea of what kind of home you can afford. But before you start searching, take a step back and come up with a list of needs and wants.

Start by making a list of all the home features that are important to you. Then, go through them one by one and determine if that feature is a must-have item or a nice-to-have item. Do you really need four bedrooms or can you get by with two? Is it essential you have a gas stove or is electric okay?

Whatever your criteria are, be sure to prioritize them before you start your search. As you continue searching, you’ll likely have to compromise on a few of these items, so it’s best to know where you stand ahead of time.

Neighborhoods

Once you’ve determined your priorities, make a list of potential neighborhoods you’d like to target. If you’re not set on an exact neighborhood, visualize your ideal neighborhood and what features it might include. Do you want to be close to downtown or removed from the city? Would you prefer a tight-knit community or one where neighbors are a bit distant from one another?

When you’ve narrowed down your list, it’s time to get well acquainted with the neighborhoods you’re considering. Spend time there during the day and night, shop around the area, talk to neighbors, and test out your commute to get a feel for what it’d be like to live there. A good Realtor® who is knowledgeable about your area will be able to help you with your search based on your price range and what you’re looking for.

Keep an Open Mind

While it’s important to know what you want, it’s equally important to keep an open mind. When you’re looking for your dream home, you’ll likely have to make some compromises along the way.

Working with the right partner that gets you can go a long way in making the homebuying process less stressful. Find a realtor who understands what you’re looking for and can help you navigate your home-buying journey with ease.

About the Author
Mojo

Mojo is originally from Argentina, where many of our developers reside, but decided to fly across the globe in search of a real estate career in Texas. He learned about Jovio and decided he wanted to join the team. Once he was hired, he sped up the ranks with his go-getter attitude. Today, he spends his free time eating sunflower seeds and yelling into cups.

Have questions? Get in touch with a Jovio Real Estate Specialist.

Thank you! Your submission has been received.
Oops! Something went wrong while submitting the form.

3 Steps You Need To Take Before Buying a Home

January 11, 2019
Real Estate

Ready to take the plunge into homeownership? Before you dive head first into your home search, there are a few important steps you should take to prepare yourself. From getting your finances in order to determining what type of home you want, you'll need to get these items out of the way before you start your search.

Prepare Your Finances

Check Your Credit Score

When it comes to preparing your finances, your credit score is at the top of the list. Lenders use your credit score to determine how capable you are of repaying a mortgage. If your credit falls below a certain amount, you may struggle to qualify for a loan. Not only that, but your score will have a direct impact on your interest rate. A higher credit score means a lower interest rate, and a lower rate means lower monthly payments.

So, how do you know if your credit score is up to par? Generally, a credit score between 680 and 720 is considered good. If you fall anywhere above 720, your credit score is considered excellent, and you’ll have the best chance at obtaining the lowest interest rate on your mortgage. On the other hand, if you have a credit score under 640, you’ll likely want to improve it before you apply for a conventional mortgage.

If you’re planning on buying a home in the next few months, you’ll want to avoid doing anything that might negatively impact your score. That means hold off on purchasing a car, financing new living room furniture, or opening a new line of credit. It’s wise to also avoid extending credit on existing accounts, which can sometimes dramatically affect your credit.

Free tools like Credit Karma and FreeCreditReport.com are a great resource for checking your credit. But the best way to check your score is by requesting a credit report from different credit bureaus: Equifax, Transunion, and Experian. You’re entitled to one free report every 12 months, which you can request through AnnualCreditReport.com.

Once you’ve obtained your credit report, you’ll want to check that everything looks good and error-free. Be on the lookout for incomplete personal information, inaccurate account histories (such as late payments), or accounts that incorrectly list you as an account holder. Is your credit in great shape? Before you run to the bank, make sure you’re financially ready to buy.

Save for a Down Payment

In most cases, when you buy a home, you’ll need to have a down payment to put towards your purchase. Although there are loan programs which allow you to put zero down, traditionally, buyers will put down 20%. We recommend aiming for a down payment of at least 10%. But be aware that you might still be on the hook to pay for private mortgage insurance (PMI) until you’ve reached 20% equity on your home. It’s also important to note that guidelines for loan programs change often. So it’s always best to consult with a loan professional before making any assumptions about how much you'll need for your down payment.

The best thing to do is to assess how much money you have saved up for a down payment and avoid emptying your savings account or borrowing from your retirement account. You should hold onto these funds in case of an emergency and to support your lifestyle in retirement. If you’re short on down payment money, keep saving. Set aside money in a high-yield savings account or a money market account. By doing so, you’ll ensure your money keeps growing while you’re working towards your savings goals.

It's important to focus on saving for your down payment, but don’t forget about closing costs. Closing costs are fees that are due once you’ve closed on your home, which pay for attorney fees, courier fees, appraisals, and inspection costs. Closing costs are often 2-5% of the total purchase price of the home (but when you partner with Jovio, you’ll get 1% cash back to help you cover the costs). Be sure to save up for these costs separately from your down payment savings.

Gather Your Documentation

The last step before starting your search for a lender is gathering important documentation. When you start meeting with mortgage lenders, they’ll want you to hand over documents to prove your income and ability to repay a loan. These documents include your paystubs, tax returns, W-2s, and bank statements. Don’t get caught off guard. It’s best to have these items prepared before you start shopping for a lender.

Find a Realtor and Secure a Mortgage

Calculate How Much You Can Afford

When you’re planning to buy a home, it’s important to understand just how much you can afford. Consider how much you have saved up for a down payment, your expected interest rate, monthly expenses, and your debt-to-income ratio.

Most lenders will abide by what’s known as the 28/36 rule. It states that, as a general rule of thumb, your total monthly expenses should be no more than 28% of your gross monthly income. Your monthly expenses include things such as your mortgage principal and interest, taxes, and insurance.

In addition to that, your monthly debt shouldn’t exceed more than 36% of your gross monthly income. This is more commonly referred to as your debt-to-income ratio. Your monthly debt includes credit cards, student loans, and car payments.

Following the 28/36 rule is a reliable way to calculate how much you can afford, but don’t forget about the possibility of unforeseen circumstances. For instance, if you lose your job or have a large unexpected expense. Even if you meet the 28/36 rule, it’s wise to be conservative so that you’re confident you can meet your mortgage payment month after month.

Choose a Real Estate Agent

There are a few key qualities to look for when choosing a real estate agent to help buy your home. As you talk to agents, ask yourself:

  • Do they understand exactly what you’re looking for in a home?
  • Are they familiar with the area you're looking in?
  • Do they have the necessary tools to be alerted when a house goes on the market (or even before)?

Having an agent that understands your criteria and is knowledgeable about the market can help you better navigate your home search.

Not only should your agent be knowledgeable, but you should be confident in their ability to be out there working for you. A buyer’s agent should actively search for properties that meet your criteria, present you with options you like, schedule showings quickly, and most importantly, negotiate on your behalf.

The most important quality to look for in an agent, though, is trust. You’re going to be spending a lot of time with this person, so make sure it’s someone you feel comfortable with and are confident can help you buy your dream home. Your agent should always put you first and never pressure you into something for the sake of a commission (did you know Jovio agents don’t work for commissions?).

When it comes to choosing the best agent for you, do your research and ultimately, trust your gut. If you’ve done your due diligence and feel comfortable and confident in their ability to get the job done, you’ve found a great partner.

Get Pre-approved

There are a variety of lenders you may encounter, including credit unions, large commercial banks, local banks, and many others. Before you go to get pre-approved for a loan, it’s a good idea to shop around and compare quotes from a few different lenders. While the lowest rate is an important factor in choosing a lender, you should also consider things such as fees and terms, the lender’s communication preferences, and how approachable they are.

As you research lenders, you may see the terms pre-qualification and pre-approval used interchangeably, but there is a difference between the two, and it’s one you should understand. First off, it’s important to know that neither guarantees you will get a mortgage. 

Pre-qualification is the first step in the process during which a lender will review basic information such as your income, assets, and debt to determine if you meet their lending standards. In addition to being helpful for the lender, this information can give you an idea of the mortgage amount you qualify for.

Pre-approval is the next step in the process. At this point, you’ll have to submit a formal application and additional documentation related to your finances. The lender will then complete a more comprehensive review of your credit and finances and provide you with a specific loan amount.

Determine What You Need and Want In A Home

Wants vs. Needs

Once you’ve been pre-approved for a loan, you’ll have a solid idea of what kind of home you can afford. But before you start searching, take a step back and come up with a list of needs and wants.

Start by making a list of all the home features that are important to you. Then, go through them one by one and determine if that feature is a must-have item or a nice-to-have item. Do you really need four bedrooms or can you get by with two? Is it essential you have a gas stove or is electric okay?

Whatever your criteria are, be sure to prioritize them before you start your search. As you continue searching, you’ll likely have to compromise on a few of these items, so it’s best to know where you stand ahead of time.

Neighborhoods

Once you’ve determined your priorities, make a list of potential neighborhoods you’d like to target. If you’re not set on an exact neighborhood, visualize your ideal neighborhood and what features it might include. Do you want to be close to downtown or removed from the city? Would you prefer a tight-knit community or one where neighbors are a bit distant from one another?

When you’ve narrowed down your list, it’s time to get well acquainted with the neighborhoods you’re considering. Spend time there during the day and night, shop around the area, talk to neighbors, and test out your commute to get a feel for what it’d be like to live there. A good Realtor® who is knowledgeable about your area will be able to help you with your search based on your price range and what you’re looking for.

Keep an Open Mind

While it’s important to know what you want, it’s equally important to keep an open mind. When you’re looking for your dream home, you’ll likely have to make some compromises along the way.

Working with the right partner that gets you can go a long way in making the homebuying process less stressful. Find a realtor who understands what you’re looking for and can help you navigate your home-buying journey with ease.

About the Author
Mojo

Mojo is originally from Argentina, where many of our developers reside, but decided to fly across the globe in search of a real estate career in Texas. He learned about Jovio and decided he wanted to join the team. Once he was hired, he sped up the ranks with his go-getter attitude. Today, he spends his free time eating sunflower seeds and yelling into cups.