WHAT DO YOU NEED TO BUY A HOUSE?

Aside from knowing if now is a good time for you to purchase a home, you should make sure you have the capabilities to do so. If you're particularly interested in figuring out your price range, we delve into that next in "How much house can I afford?"
There are five chief components that you should have if you're interested in buying a home:
  • Savings
  • A steady income
  • An acceptable credit score
  • The ability to obtain a loan
  • An agent or broker

Yes, You'll Need Money

You don't need the cash equivalent of the agreed price in your hand, but you will need money in your account. When purchasing a home you make a relatively small down payment in cash, which can be anywhere from 3 to 20 percent of the price.
There will be other costs you'll need to pay during the transaction, including closing costs and a fee for having the home professionally inspected.
Here's a summary of what you'll be requested to pay up front:
  • Down payment: 3 to 20 percent of the purchase price (the amount will vary based on the kind of loan you get and how good your credit score is)
  • Closing costs: 1 to 8 percent of the purchase price--but your bank may be willing to add this cost to your mortgage
  • Miscellaneous costs: This usually runs from $250 to $800 and includes the loan application fee, credit report fee, professional home inspection, and an appraisal
Movoto's Buyer Tip:
When it comes to purchasing a new home, you can never have too much money saved up. Regularly stashing around 5 percent of your income in your savings account can expand your price range and allow you to cover a larger down payment.

Keep in Mind:

The more you can offer for a down payment, the easier it is to get a loan and the lower your monthly payment

Do You Have a Regular Income?

Possibly the most important price tag associated with buying a home is your monthly mortgage payment. If you can't afford a recurring payment, then you aren't ready to become a homeowner.
If you're unemployed or just started a new job a few months ago, you might want to wait before trying to get such a large loan. Bank lenders are much more willing to give mortgages to an individual with a stable job who has been working for that company for a while.
If you plan to buy a home, you also need to be able to cover the other payments associated with homeowners. This includes property taxes and homeowner's insurance--both of which are regular fees.

Check Your Credit Score

Unless you happen to be wealthy and don't need financial assistance, you'll likely need a bank loan to help pay for your home. This means that you need a decent credit score, and you should check on yours as soon as possible in case you need time to improve your spending habits.

What Makes Up Your Credit Score?

Most lenders today use the FICO score, which ranges from a low of 300 to the maximum 850. A credit score is comprised based on your credit history, or how you manage your finances. This typically focuses on the types of credit you use, how long your accounts have been open, and whether you pay your bills on time.
A FICO score will take into account:
  • Your payment history: This makes up about 35 percent of your credit score, and you want to have a relatively good record of paying your monthly bills on time
  • Your debts: 30 percent of your score depends on the status of your current debt; if you owe a lot of money on many of your accounts, this could indicate you as a higher risk
  • Established credit history: Around 15 percent of your score is based on how established your credit history is, and a longer history is traditionally better
  • New credit: 10 percent or so of your score depends on how many new credit accounts you have and whether you've opened a large number of new accounts in a short time period
While bank lenders are willing to work with a variety of credit scores, some numbers are better than others:
  • Ideally you want a credit score around 700 or above
  • A lower score does not automatically disqualify you from a loan--but it does make the process of finding a lender more tedious and will significantly increase your monthly mortgage payment

The Bottom Line:

Your score is based on many factors--both positive and negative--and raising the number is not unlike trying to get into shape (as in it takes time and effort). If your score is lower than you want it to be, don't panic. You can raise your FICO score by:
  • Paying your bills on time
  • Fix any missed payment issues, and stay current on your upcoming payments
  • Pay off debts
  • Keep credit card balances low
  • Open new credit cards only as needed, not raise your score
Also keep in mind that a credit score isn't the only variable used by lenders to determine your eligibility.

Approval for a Mortgage

Most home buyers cover the majority of their purchase with a bank loan known as a mortgage. You will, however, need to get approved for a mortgage--which naturally requires paperwork.
Getting pre-approved is probably your best bet, because it will give you a more realistic price range and put you in a better position to make offers. To get pre-approved you should meet with a lender and discuss your loan options before seriously searching for a house.
For more on mortgages, check out Question 3--"How much house can I afford?"--and Question 6, "How do I know what loan to apply for?"
If you plan to buy a home, you also need to be able to cover the other payments associated with homeowners. This includes property taxes and homeowner's insurance--both of which are regular fees.

An Agent or Broker

Although real estate search engines and online brokerages give you a seemingly endless amount of property listings, your best bet is to purchase a home with the assistance of a real estate agent or broker. (Question 5 can help you decide which one to work with.)
Real estate professionals, if knowledgeable and well-acquainted with the area, can be an invaluable tool when it comes to buying a home. They'll assist with pricing, help decide what type of loan is best for you, and act as a guide through the entire
Movoto's Buyer Tip:
The location could easily be the most important aspect of home shopping. Location is important not only for your current needs, but for future selling opportunities as well. Make a list of the most important aspects you want in a neighborhood, such as being close to work or near a good school. This will help guide your home search.
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