Home Buying Tips for Central TX Real Estate
Buying a new home can be a life changing experience. It can also be a stressful journey, however if you are prepared it can also be a pleasant experience. The tips below will help you get ready for your property search and prepare you to purchase a Central Texas home.
Feel free to contact a REALTOR® at Longhorn Realty, we are ready to help with questions, comparables, lender recommendations, documents, property information and anything else you may need to start your home search in Central Texas.
Check your credit.
If you need a mortgage to buy a home, you need to make sure your credit history is as clean as possible. A few months before you start your home search, get copies of your credit report. Make sure the facts are accurate, and repair any credit issues you may find. The higher your credit score, the better interest rates, fees and down payment options you will have. A credit score between 640 to 680 may cause a buyer to pay more fees and require a larger down payment. While there are many qualified borrowers in the 580 range, today’s market is looking for a 640 to 680 credit score as a minimum. A score of 700 to 720 will get you the best deal and 750 and above will provide you with the best market interest rates.
How much home can you afford?
One rule of thumb is that you can buy a home that costs about 2-1/2 times your annual salary. Use our mortgage calculator to see how your income, debts, and expenses affect what you can afford. If you’re using FHA financing your home expenses should not exceed 31 percent of your monthly income. For conventional loans, a safe formula is that home expenses should not exceed 28 percent of your gross monthly income. Read more on “Can you afford to buy?”
Prepare for down payment, PMI and closing cost.
Depending on your credit score and financing, you typically need to save enough money to put anywhere from 3.5 percent to 20 percent down. FHA requires a 3.5% minimum down payment. Many first-time buyers don’t have the funds for a 20% down payment, but don’t worry, as your lender should be able to find alternatives that will work for you. The US government offers a handful of government backed loans with 0% to 3.5% down. Check out the Federal Housing Administration’s loans. Former military members can go through the Department of Veterans Affairs, and the Department of Agriculture offers loans through Rural Development programs.
With conventional loans, by not making a 20% down payment means a mandatory additional expense called private mortgage insurance (PMI). PMI typically costs between 0.5% to 1% on the entire loan amount on an annual basis. In other words, a $200,000 loan at a 1% PMI rate adds an extra $166.66 to your monthly house payment expense. PMI protects your lender against the possibility of you defaulting on a property.
Also don’t forget that in addition to your down payment you will also have to pay closing cost. Closing cost can range between 2% to 5% of your purchase price of your home. Your lender can provide you with an estimate of your closing cost during your pre-approval process.
Choosing points and rates.
When deciding on a mortgage you will usually have an option on points and interest rates. By paying more for points at closing, which is a portion of the interest, you can receive a lower interest rate. If you stay in your new home for three to five years or more it’s usually a better deal to pay more points. Although you pay more up front by paying points the lower interest rate will save you more in the long run.
Get pre-approved by your lender!!!
Getting pre-approved by your lender is one of the single most important things you can do in preparation for buying any kind of property. Being pre-approved will save you and your agent time from looking at homes thats not in your budget, It also puts you in a very desirable position to make a serious offer when you do find the right home. Offers with pre-approved buyers will rank much higher with sellers than offers from buyers who are not pre-approved. A pre-approval from a lender is based on your actual income, debt and credit history and is a much more thorough process than getting pre-qualified. Please read more about why you should be pre-approved and pre-approval vs. pre-qualified.
Contact LONGHORN REALTY to start your property search.
Even though the internet gives buyers access to an endless amount of residential listings, first time and experienced home buyers are far better off using a real estate professional for your purchase. A REALTOR® at Longhorn Realty will have access to information on MLS such as surveys, restrictions and disclosures that is not available to the unlicensed public. REALTORS® can also refer lenders, inspectors, contractors, provide information about communities, future developments that would be invaluable to any buyer. Click here to perform a custom property search and to view listings on Austin MLS. Read more on why you should use a REALTOR®.
Have the home inspected by a licensed professional.
It’s extremely important that buyers get a home inspection. A home inspection is almost always performed during the option period. Inspecting during the option period allows for negotiating repairs or the option to terminate the contract if major deficiencies are found that can’t be corrected. A home inspection is key to really understanding the condition of the home that you are buying.
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