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Mortgage and Homebuying

The 4 Basics: Mortgage & Homebuying

   The homebuying process may seem complicated and stressful, especially for first-time homebuyers. There are a lot of information to digest, and since buying a home is one of the most important and largest financial decision most people face in their lives, the stakes can seem incredibly high. When you break down the process into bite-sized steps, it can actually be quite fun and free-of-stress. The basic steps are easy to follow and accomplish. With little time and effort, buying your first home can, and should be, enjoyable. Let's get started with the basics you should know.

Improve Your Credit Score & Save Money

    Before applying for a mortgage you should be working on improvng your credit score. A high credit score will help you qualify for lower mortgage interest rates. FICO credit score is the score most lenders focus on. With a FICO score of 740 and above you put yourself in the best position for the lower rates.

Saving for your first downpayment is an equally important step. While you are trying to improve your credit score, continuously save money every chance you get. The average downpayment in the US is between 3% - 6% the total purchase price of the home. The median downpayment in 2021 was $26,000. In layman's terms $25,000 - $50,000 is an ideal amount to save for your downpayment.


Get Your Mortgage Pre-Approved First

 Once you have properly prepared your credit and saved up for a down payment, it is ideal to find a trustworthy lender and get preapproved for a mortgage. There are many programs and different loan types available that will lower or even eliminate your down payment completely. Your lender will guide you through a process to find the best loan available for your personal circumstance. Once you are preapproved, you will have a clear idea of your budget. The preapproval letter will show the real estate agent that you are a qualified and serious potential buyer.


Find Your Home and Negotiate a Great Offer

    A good real estate agent will help you shop for your new home. They will be experts in the local market and will educate you on what is important and what you should be focusing on. Once you find a home, the purchasing process is a little different than buying most other things. You put in an offer and the seller can accept, reject or make a counteroffer. This is where it is important to have a knowledgeable and savvy agent with excellent negotiating skills. Contrary to what many people assume, negotiating is less about being tough and more about clear communication and finding a solution that meets everyone’s needs.


Contingencies and Counter Offers

    Contingencies, simply put, are things that must happen in order for the agreement to purchase to be valid. For example, many purchase agreements contain contingencies that say the buyer must be able to sell their current house within a certain time frame in order to move forward with the purchase of the new house. If the buyer cannot sell their existing house, they are not obligated to move forward with the purchase.

Another common contingency is that the home must pass a home-inspection. In the midst of the recent pandemic-related housing boom, many motivated buyers waived their right to a home-inspection in order to get the home they wanted. While this is not always a bad idea, one should really think twice about buying a home that has not been thoroughly inspected by a professional.

 Sellers generally like what is called a “clean offer”. That is an offer that is free of contingencies. Being able to submit a clean offer can save you a lot of money, as quite often if there are many interested buyers, the seller will not always select the offer that contains the highest price, they are often willing to sacrifice some money in order to assure that the transaction completes.


A Word on Today’s (2022) Market Conditions

    The Covid-19 pandemic caused a major shakeup in most peoples’ lives, and the real estate market was shaken up, too. Many people fled densely populated areas for larger homes in the suburbs and rural areas to facilitate both work-from-home (WFH) and social distancing needs. Coupled with a slowdown in construction and material availability, that has led to a housing shortage and a massive price increase in many areas of the country. Home prices have absolutely exploded in the past two years, and historically low-interest rates have helped keep mortgage payments at reasonable levels.

 All that is likely to change. Interest rates are rising, which will raise most mortgage payments, and since the market has already seen a record number of transactions in the past two years, it is highly likely that we are in the final stages of a housing bubble. Buying a home, especially this year, may be complex due to rapidly changing interest rates as well as market conditions as we shift away from the pandemic-related migration. Having a trusted advisor in your corner will be crucial.