The clock is tickingWith mortgage rates finally beginning to drop and many listing prices lower than last year’s peak, potential homebuyers are thinking 2023 might be their chance to score their dream home. If you’re a buyer, that means you’ll want to be prepared by getting your paperwork together for a loan preapproval, making that initial connection with a real estate agent, and putting together a list of must-haves. For sellers, now’s the time to plan the necessary repairs and clean-up tasks you’ll need to ready your home for those listing photos. You should also use this time to draft your real estate “quarterback”—that’s the real estate agent who will be in your huddle to plan the big moves! Just like a football team’s MVP, your real estate agent can mean the difference between a big win (a quick sale above the listing price) and losing big time.
Here’s everything you need to know:
Buyers should get their finances in order and obtain a loan preapprovalIf you plan on buying a home this year, begin with checking your credit score. You can do that by starting the mortgage preapproval process. If you think you might need to work on improving your credit score, consider checking your credit long in advance of the loan process to give you time to correct any issues you find. It will give you a tremendous advantage when you do go to buy. Keep in mind, the free services will not give you a credit score. And that score is what you’re going to need to tell you your next steps. Once you get the score, get some help in determining how to approach a low score. Canceling credit cards and closing bank accounts isn’t always the best approach and can actually make your score go down. Seek out a credit counselor or your loan officer for help.
Your credit score is a “risk” score.It tells lenders how likely you are to pay them back. The lower the score, the higher the risk that you won’t pay on time or at all. That risk correlates to your interest rate. The higher the risk, the higher your interest rate will be. Your will indicate how much of a loan is safe to offer you. So if you think you need time to get your credit in order start far ahead of time.A loan preapproval will tell you how much home you can realistically afford. At this time the lender will also tell you about any home buyer programs that can reduce your loan expenses or make a more expensive home more affordable. For instance, many first-time home buyers may be eligible for government and community mortgage programs that offer lower interest rates, cash grants for closing costs, forgivable loans for down payments, and other spring homebuying incentives.
Homebuyer programsFirst-time home buyer programs may not mean what you think. The definition of first-time home buyer may mean that you haven’t owned a home in the past three or four years. It doesn’t necessarily mean that you’re disqualified if you’ve ever owned a home. With a preapproval letter on hand, you and your real estate agent will know exactly what your budget is. You’ll be ready to make an offer as soon as the perfect home hits the market. What’s the process for getting preapproved for a home loan?
1. Gather Financial Information:Before you start the preapproval process, you should gather all of your financial information including bank statements, pay stubs, tax returns, and any other documents that will help to demonstrate your ability to repay a loan. If you’re a remote worker and moving to a different city or state, you’ll need a letter from your employer stating that you will continue to remain employed even after your move.
2. Contact Lenders:Once you have gathered all of your documentation, begin contacting lenders who can provide preapprovals. You should shop around with different lenders in order to get the best rate and terms available for your specific situation. Trying to get the lowest mortgage rate possible? Check out our tips below.
3. Submit an Application:When applying for a preapproval, most lenders will require you to submit an application along with supporting documentation such as income verification and tax returns. This allows them to assess your current creditworthiness so they can determine how much they can loan you and at what rate.
4. Receive Preapproval Letter:If you’re approved, the lender will issue a formal letter stating that you are approved up to a certain amount for financing on a property purchase or refinance transaction. This is known as a preapproval letter. It’s valid for 90 days. Though contemplating finances may not sound like the most exciting thing to do on Super Bowl weekend, consider getting that loan preapproval started sooner rather than later.
1. Getting the lowest rateYour credit will not go down in this process. Lenders take this research into account. Start with your personal bank. Some banks and credit unions will offer you a better rate if you already have a relationship with them. When there are changes in the real estate market there are also changes in mortgage industry. So you may not be able to get a Wells Fargo loan, for example, through a mortgage broker. You’re probably going to have to go directly to Wells. You’ll need to provide all requested documentation in order to get an accurate interest rate and loan estimate. Calling and talking to someone on the phone isn’t going to do it. They can’t actually provide you with those numbers until they’ve evaluated your situation.
2. Improve your credit score.As we mentioned, this is one of the key factors in getting a good mortgage rate.
3. Choose your loan type and terms carefully.The 30-year mortgage is the most well known available. However, it’s also the most expensive. If you’re sure you’re going to own the house for that long consider another less expensive loan option.
4. Make a larger downpayment.Twenty percent down will give you a better rate because there’s lower risk for the bank. It will also help you avoid PMI or private mortgage insurance, which is a non-tax deductible cost.
5. Buy points.You can “buy down” your loan rate. By paying a fee upfront you are able to lower your rate. In some cases, you can negotiate with the seller for them to pay that fee.
Each mortgage point (or percent) has a value equal to one percent of your mortgage. When you make an upfront payment, the interest rate is reduced and monthly mortgage payments are lower. Keep in mind, however, the break-even point. It will take time to recoup that expense. This is how long it will take for your total savings to add up to the cost of the points. If it’s longer than you plan to own the home, mortgage points may not be worth it for your situation.
6. Lock your rate.Your mortgage lender will advise you of the timing on locking your rate. It’s complicated and requires a lot of forethought. The idea is to lock it when you believe the rate will be lowest during your escrow period. But you also have to take into account the fact that locks expire. You need that expiration padded just in case your scheduled close date is extended for some reason.
7. Refinance later.
The idea is that you refinance when the rates go down. It makes me cringe to even think about this but it is an option. Too many people relied on this just prior to the Great Recession. And things did not turn out well. Home buyers got ridiculous loans they couldn’t pay back with the plan to refinance later. Unfortunately, the rates didn’t go down. Thousands of people lost their homes. Be sure you know the risks and consequences of your decisions.
8. Do not accumulate more debt.
The best way to say this is: Don’t buy anything when you start the home-buying process. Don’t get new credit cards. Don’t go buy a boat or a car. Don’t cosign for anyone in their efforts to get a loan. When you cosign for someone you become responsible for the repayment of that loan. If they don’t pay it, guess what? You get to pay. That loan is taken into consideration when the bank evaluates your loan risk.
Sellers should start getting their properties readyHome sellers looking to sell this spring should take a proactive approach to getting a home ready for the market. There’s a lot to do! Start with cleaning, repairs, and upgrades. Decluttering and depersonalizing your home can make the property feel larger and more inviting to potential buyers. Use this time to also address any minor repairs such as patching holes and fixing or replacing leaky faucets. Upgrading cabinet hardware is sometimes an inexpensive way to create a more polished look. Putting fresh mulch in your yard is one of the most cost-effective ways to add appeal to your landscaping. A few new plants and shrubs will also add color without breaking the bank.
If it’s time for a repaint, look into trending but neutral colors. Consider staging your home with modern decor so that buyers are able to envision themselves living there. Finally, deep cleaning (including the windows!) is essential before listing so that prospective buyers are presented with an immaculate space from top-to-bottom. Taking these steps will help ensure that you get a positive outcome.
Consult your realtor for a full list of what you’ll need to do in order to get your house on the market in tip-top condition.
Both buyers and sellers should connect with a real estate agent right awayEngaging with a real estate agent early on is the winning move for both home buyers and sellers. Agents know the local market and can let you know about hot homes before they’re listed. They can help home sellers get the most from their investment. An experienced real estate agent is like a great coach who can help you work through all the strategies of buying and selling, so you don’t get sacked by any unexpected surprises. Whether it’s kicking off your search, or scoring the ideal price when selling, having an agent on your team can mean the difference between success and failure. So don’t fumble this opportunity—make sure to connect with us before Sunday’s big game!
The above real estate information, THE BIG GAME KICKS OFF THE SPRING HOMEBUYING SEASON, was provided by Vicki Moore, a realtor specializing in home sales from Pacifica to Pescadero, including greater San Mateo County.
Vicki can be reached via email at firstname.lastname@example.org or by phone at 650-888-9268. Vicki has helped people move in and out of many San Mateo County homes for the last 25 years.
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