Preparing to Buy a Home in 2024

Starting the process of buying a home is exciting but requires planning. Learn more about navigating the process with advice from a local lending expert.

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Must be 18 or older to apply. All loans are subject to credit approval.

Table of Contents

1. How to Know If You're Financially Ready
2. The Pre-Approval Process
3. Finding the Right Home
4. Completing Your Home Purchase
5. 10 Things to Avoid When Buying a Home

Are You Financially Ready to Purchase a Home?

Are you thinking about buying a home? It is a big decision, and you should consider whether you are financially ready.

Here are some questions to ask yourself:

• Do you have a steady income?

• Have you been consistent in paying bills and rent on time?

• Can you afford the upfront costs of buying a house, such as the down payment and closing costs, without depleting your savings?

• Would you be comfortable paying a monthly mortgage payment?

If you answered yes to these questions, you may be ready to purchase a home. However, if you answered no to any of them, you might want to get professional guidance on your situation.

Contact a Mortgage Lender

Looking at Your Debt-to-Income Ratio

Another key factor to consider is your debt-to-income (DTI) ratio. Lenders usually like this to be under 43%. This ratio calculates how much of your monthly income goes towards paying debts.

For example, say you make $5,000 a month in gross income, and your debts take up $2,000; your DTI ratio would be 40% ($2,000 ÷ $5,000).

How Much Should You Put Down?

Ideally, 20% down. This amount lets you avoid private mortgage insurance (PMI), lowering your monthly payment.

If putting a 20% down payment on a home is not feasible, there are down payment assistance programs that allow you to put down as little as 3%. Remember, you'll still need funds for closing costs and the unexpected expenses of owning a home.

Why Your Credit Score Matters

Your credit score matters because it shows lenders how you make payments, manage credit, and handle debt. Most lenders require a minimum credit score of 580.

Here are a few strategies to boost your credit score:

• Make small purchases with your credit card while keeping usage at 30% or less of the credit limit
• Ask for a higher credit limit to lower overall utilization
• Don't close your old credit cards; just don't use them anymore
• Pay your bills on time and let any balance hit the statement first

Be patient; some credit blemishes can only be repaired with time.

Determining How Much You Can Afford

Determining how much home you can afford isn't only about the list price—it includes monthly costs, such as principal, interest, property taxes, homeowner insurance, and PMI (if your down payment was less than 20%).

Banks look at your debt-to-income ratio, ensuring any new monthly payment fits within the 43% DTI guideline.

The Pre-Approval Process

Getting pre-approved lets you know how much you can spend and shows sellers that you are a serious buyer with financial backing.

Explore FSB's detailed guides comparing pre-qualifying vs. pre-approval and tips on applying for a mortgage for more in-depth information!

Looking to get pre-approved with FSB? Here are two options:

• FSB's Online Application (recommended if you are ready to complete your application)
• Inquiry Form (recommended if you may need assistance completing your application)

Choosing a Mortgage Lender

While securing the lowest rate is important, it's not everything. Consider recommendations from friends and family and explore reviews left by previous borrowers.

Choose a lender based on their expertise working with various mortgage options and how much support they will offer during the process.

Finding the Right Home

Finding the right home starts with clearly understanding your wants and needs.

Start by answering these questions:

• How much are you willing to pay in property taxes?
• What's the oldest home you would consider purchasing?
• Are you interested in a fixer-upper, or do you prefer a home that is move-in ready?
• Is there a specific school district you want to live in?
• What features are essential in your home? Consider the number of bedrooms and bathrooms, the need for a garage, fencing, etc.
• Do you prefer a specific style, such as a ranch or a two-story?

Answering these questions before searching for a home can help you prepare for the next step!

Working With a Realtor

A realtor offers invaluable assistance in your home search by providing:

• Guidance throughout the buying process
• Insight into the local housing market
• Alerts for new listings that fit your criteria
• Support during inspections and negotiations

You may ask, "How do you find a realtor?" One approach is to ask for recommendations from friends or family.

Making an Offer

When you've found the perfect home, the next step is to make an offer. Consider what you're willing to pay by taking into account the home's condition, market value, and how long it has been on the market. Your realtor will guide you through this process to ensure your comfort.

Completing Your Home Purchase

Finalizing your home purchase is a multi-step process that you should prepare for. Here are the steps you should take before closing on a home.

Inspections & Appraisal

You should conduct home inspections and an appraisal before finalizing your home purchase.

Inspections can reveal hidden problems with the house, from the foundation to the fridge, allowing you to negotiate any necessary repairs. Skipping inspections could lead to missed issues that aren’t visible during a walkthrough.

An appraisal, which your lender will require, confirms that the price you're paying for the home matches its market value.

Understanding Closing Costs

Closing costs are the fees and expenses you are responsible for paying on your closing day, such as:

• Loan processing fees
• Appraisal and inspection fees (if you opt for inspections)
• Credit report fee
• Flood certification fee
• Title work and closing services
• Recording fees
• Pre-paid homeowner insurance and taxes

You'll receive a document outlining the final costs a few days before closing, and your lender will keep you informed throughout the process.

On Closing Day

Closing day marks the official transfer of homeownership to you. You must bring a valid ID and be ready to sign numerous documents.

After completing the paperwork, you will receive the keys to your new home!

10 Things to Avoid When Buying a Home

When buying a home, some actions may seriously impact your mortgage application.

Avoid These 10 Homebuying Mistakes:

1. Changing jobs, starting a business, or quitting your job
2. Buying a car, truck, or van
3. Using credit cards excessively or letting your accounts fall behind
4. Spending your closing funds
5. Omitting any debts or liabilities from your loan application
6. Buying new furniture
7. Triggering any new credit inquiries
8. Making large deposits without consulting your loan officer
9. Changing your bank accounts
10. Co-signing a loan for anyone

Keep your finances stable before purchasing a home to ensure your mortgage application proceeds without any issues.

Questions?

FSB is ready to assist you every step of the way, aiming to make your homebuying experience as stress-free as possible.

Contact the FSB Mortgage team at 319-730-6990.

Prefer to reach out online? Request to be contacted.

Meet Tammy Yamilkoski

Tammy, with over 25 years of experience in mortgage lending, has assisted thousands in achieving their American Dream. As Vice President of Mortgage at the Hiawatha Branch, she's known for building lasting client relationships. Tammy is dedicated to going the extra mile, leveraging her extensive knowledge of loan programs to secure the best options for her clients, ensuring a stress-free, on-time closing. Reach out to Tammy for expert advice today! Call 319-730-6992 Email TammyYamilkoski@fsbmail.net This email is not secure, please do not include sensitive financial information.

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