Home prices and rents are creeping up in greater San Francisco bay area. It's time to explore your options and become a home owner
Real estate agents can help you narrow your housing options. The U.S. Department of Housing and Urban Development recommends the use of a real estate agent. Make sure the agent works for you so the agent will be working for your interests. Your agent can take your criteria for a home, including cost, neighborhood, schools, home size and amenities, and match it with the Multiple Listing Service (MLS), which lists all of the homes for sale in a particular area. If you’re purchasing government housing, such as a HUD home, you must have an agent.
Ginnie Mae recommends that first-time homeowners consult with several lenders before applying formally for a loan. Every lender offers different interest rates and fees, and those can impact your monthly mortgage payment. By shopping with different lenders you can find the best possible deal. Consult different types of financial institutions, including mortgage brokers, credit unions, savings and loans, traditional banks and government lenders.
Before beginning the purchase process, make sure you can afford the home. Most lenders adhere to standards set by Fannie Mae, which buys and sells mortgages on the secondary market. Lenders want to see that your total monthly housing payment is no more than 28 percent of your gross monthly income, and that your total monthly debt payments are no more than 36 percent of your total gross monthly income.
You are responsible for two upfront costs when you buy a home. First there is earnest money, which is a small deposit that lets the seller know you’re serious about buying the home. Earnest money can be anywhere from $500 to $2,000. The second is the down payment, which is a percentage of the cost of the home. Lenders have different requirements for down payments. Traditional lenders usually seek a down payment of at least 10 percent. Lenders backed by the government can seek less, if you qualify. FHA has a program where you are only required to make a 3 percent down payment.
First-time homebuyers should be prepared to turn in a great deal of documentation when they apply for a mortgage loan. Ginnie Mae recommends that you gather all of these documents beforehand. You’ll need personal information, such as Social Security numbers and photo IDs. You must have proof you can afford the home, including bank statements for the past six months, a month’s worth of pay stubs and documentation of all other financial assets. You should also bring documentation on your current credit accounts, tax statements for the past two years and contact information for someone who will verify your employment.
Your credit score has a big influence on whether you’ll be approved to buy your first home. According to the Home Buying Institute, a score of 620 will usually get you in the door with lenders. But to get the best rates, you’ll probably need a score of at least 740 to qualify. Your credit score will influence the amount of interest you will pay on the loan.
Closing is when you sign all of the loan and ownership paperwork and take over the home. At closing you will be responsible for taking care of some costs, including title insurance and points to lower the interest rate on your mortgage, along with fees for loan origination, loan applications, appraisals, housing surveys and even your first month of homeowner's insurance. These costs can be up to 8 percent of your purchase price.