What You Need to Know About Home Loans
If you’re looking to purchase a new home in Arizona, you have a lot of planning to do. Buying a home is quite an investment, and there’s much to do to prepare.
You need to be ready to prove to lenders that you are a worthy borrower so that you can find the home of your dreams— that fits your budget. Let’s look at everything you need to know about qualifying for a home loan.
Assess Your Budget
First and foremost, you need to understand how much house you can afford per month. Most lenders base how much they are willing to loan on your credit score and debt-to-income ratio, but this doesn’t consider additional payments you may have, like groceries, streaming subscriptions, and so on.
First, lay out your current budget. Look at your current income, debts, monthly payments, and anything else. Then, estimate your monthly grocery and gas expenses. You can use your current utility costs or create an estimation sheet that uses numbers provided by real estate websites to guesstimate how much you will pay for things like property taxes and utilities.
Take out what you pay for rent and experiment with different payment amounts. This will help you determine what you can realistically afford for a mortgage payment.
Next, look at your ability to save. You will need to have a down payment prepared when house hunting; requirements can range from 3.5% to 20%+ depending on the type of home loan you qualify for.
Perform a Financial Check-Up
Once you have your current budget, it’s time to look more deeply at your finances. This includes figuring out your current credit score. Different home loans are available based on your credit score, but you generally want to have at least a 620 before you start seeking pre-approval. Any lower and you risk awful loan terms or predatory lenders.
Keep an Eye on the Real Estate Market
The current real estate market will play a significant role when you’re ready to start shopping. This affects the chance of a bidding war, loan interest rates, home values, and more. At the very least, you need to know the average home value where you want to purchase a house and ensure the estimated monthly payments fit within your budget. You may find it isn’t the right time to buy or be encouraged to start the process sooner.
Find a Mortgage Broker
Consider working with a mortgage broker rather than investigating the multiple home loans available. Mortgage brokers have insight into local real estate markets and current loan rates and can help you choose the best home loan for your situation.
They may also have connections with local real estate agents or home warranty providers to help you find your potential home and protect it should your offer be accepted.
If the market is correct and your budget is ready, it’s time to get pre-approved for a loan. You don’t have to choose your final lender just yet. Pre-approval isn’t an obligation to go through with one loan over another; instead, it’s evidence that this specific lender will approve you for up to this amount once you formally apply.
This lets sellers see that you have your financing in order and can afford your offer. If you don’t have a pre-approval letter or cash, your offers won’t be entertained.
Once you have your finances, it’s time to start looking at properties. You can save yourself a lot of time by listing out preferences and dislikes for your future home. Multiple real estate websites list homes available in most areas of Arizona and include features like the number of bedrooms and bathrooms, the average crime rate, the average school quality, and more.
You can use these tools to narrow your search areas and cross out any listings with deal-breakers. Your real estate agent will then use your lists to find properties that fit your criteria and arrange tours so you can get an in-depth look at homes and the neighborhoods around them.
You have quite the adventure in front of you. Choosing a home, making an offer, negotiating with the sellers, and closing can be quite the process, but in the end, you can proudly declare yourself the owner and start over from your new house into your dream home.