As we come to the end of the year, I talk to a number of people who are thinking that next year may be the time to buy a home - whether it is their next home or their first home!
Buying a home is a major commitment, so now is a great time to start making sure you are in the best position to buy a home here in the Richmond Virginia area! Here is a quick video on how to start!
Before you even decide to call a Realtor to help you with your search, there are some steps you can take to see if now is the right time for buying a house! You are going to need to talk not only to a Realtor, but to a lender!
The lender is going to want to know not only how much money you make (that lets them know what price and what monthly payment you are able to afford), but they will want to know that you have a work history - usually they want to see that you have been on the same job (or at least working in the same field) for at least 2 years!
The lender is also going to look at the Debt To Income Ratio! What is the debt to income ratio? It shows the lender just how much debt you have relative to how much income you have! So, you will want to add up all your monthly debts (the monthly payments you have on your credit cards, your monthly payments on any student loans or other loans, your monthly car payments, etc) and divide that by the GROSS monthly income you have! The lower this number is, the better! But it should not exceed 50% (which may be still too high for some lenders). If it is too high, now is the time to start working on paying off some of your debt!
The lender will also want to know if you have enough liquid assets to cover things like the down payment, the closing costs and even the costs of buying a house, such as the inspections. Yes, there are some loan programs out there that won't require a down payment (a VA loan is an example), but most people will have to put down some sort of down payment - it could be as little as 3% or it could be higher than 20%! In addition, there will be closing costs to get the mortgage - these closing costs will cover things like attorney's costs, title search, costs the lender charges to get you the mortgage, the appraisal, costs for setting up your escrow accounts, etc. Depending on the lender and the loan, this could be anywhere from 2% of the loan amount to as much as 6% of the loan amount! And in today's real estate market, you will most likely not be able to get the seller to pay any of your closing costs!
The lender is also going to look at your credit score! Most lenders here locally have a minimum credit score requirement of around 620! But the higher the credit score the better in the eyes of the lender! It tells the lender how well you handle credit! And having a higher credit score will also help you get a more favorable interest rate on the loan - and the lower the interest rate is on your mortgage, the lower your monthly payment will be!
One question that always comes to mind is - are you willing to live in the house you buy for the next several years! Although a mortgage may be for 15 or 20 or 30 years, most people don't stay in their houses that long! But you do need to stay in the house for a few years after you move into it! Although the real estate market in 2021 has been very strong with strong appreciation rates year over year, it won't always be like this and so you need to stay in the house long enough to build up some appreciation to make a move to your next home after this one!
Finally, you need to ask yourself - IS IT THE RIGHT TIME TO MAKE A MOVE? Only you and your family can answer that question!
Feel free to check back here each week for the next step on making a move! In the meantime, if you have a question or are thinking of making a move anywhere in the Richmond Virginia area, feel free to contact me and let me know how I can help!