From Renter to Homeowner: 5 Steps to Prepare for Your First Home Purchase
John Doss • August 15, 2024
Step 1: Evaluate Your Finances
Before diving into the home buying process, assess your financial situation. This includes:
- Understand your budget: Determine how much you can afford by calculating your income, expenses, and potential mortgage payments. Utilize online affordability calculators to help set a realistic budget. Or for a more accurate assessment, talk to a local lender!
- Build your credit: Your credit score plays a significant role in determining your mortgage eligibility and interest rates. In North Carolina, most lenders require a minimum credit score of 620 for conventional loans. However, aim for a score of 700 or higher to qualify for better rates and terms. Check your credit report for any errors and work on improving your score if necessary.
- Consistent employment history: Most lenders like to see at least 2 years of consistent employment history. Job switches shouldn't negatively affect your ability to qualify as long as there are not long gaps (>6 months) of unemployment and your income has remained steady or increased with the new position.
- Speak to a lender: When someone expresses interest to us about wanting to buy a house, the first steps we take is to have them speak to a lender to see how much they can afford. A reputable lender will be able to run your finances and calculate how much house you can afford based on your debt-to-income (DTI) ratio. Typically, lenders want to see a DTI of 36-43% or lower. Your DTI will directly impact how much "house" you can afford.
- Save for a down payment: There are several loan programs in North Carolina that offer low down payment options. However, we advise you to save at least 3-20% of your target home price. Remember, a larger down payment can lead to better loan terms and lower monthly payments. And can also avoid private mortgage insurance (PMI) which is an additional monthly fee you will pay if you put less than 20% down. Even with down payment assistance programs, you will still need to pay closing costs.
Step 2: Determine Your Budget and Explore Financing Options
Set a realistic budget: Consider your income, expenses, and lifestyle when determining how much you can comfortably afford to spend on a home. Factor in not just the mortgage payment, but also property taxes, insurance, maintenance costs, and potential HOA fees.
Research mortgage options: North Carolina offers various mortgage programs for first-time homebuyers:
- First-Time Homebuyer Assistance programs: Depending on your income you may qualify for a down payment assistance program. Speak to your lender to see if you qualify.
- Conventional Loans: Typically require a higher credit score but offer competitive rates.
- FHA Loans: Allow for lower credit scores and down payments as low as 3.5%.
- VA Loans: Available to eligible veterans and active-duty military personnel.
- USDA Loans: Offer 100% financing for eligible rural properties.
Get Pre-Approved: Obtain a mortgage pre-approval from a lender. This will give you a clear idea of how much you can borrow and is the prerequisite to viewing houses and making offers. It is free to complete and will show your Realtor and any potential seller that you are serious, and have the buying power to close on a home.
Step 3: Choose the Right Location
The Triad offers diverse living options, from urban centers to quiet, rural towns. Consider the following factors when selecting your ideal location:
- Proximity to work and amenities
- School districts (if applicable)
- Future development plans in the area
- Property tax rates
Research different cities and neighborhoods to find the best fit for your lifestyle and budget.
Step 4: Decide The Features You Want in a Home
As you prepare to buy your first home, it's essential to identify the features that matter most to you. This will help narrow down your search and ensure you find a home that meets your needs.
- Consider Your Lifestyle: Think about your daily routine and lifestyle preferences. Do you need a home office for remote work? Are you an avid cook who requires a spacious kitchen? Consider how you live and what features will enhance your daily life.
- List Must-Haves vs. Nice-to-Haves: Create two lists: one for "must-have" features (e.g., number of bedrooms, backyard space, proximity to schools) and another for "nice-to-have" features (e.g., a finished basement, swimming pool, or gourmet kitchen). This will help you prioritize your needs and make informed decisions during the home search.
- Consider future needs: Consider your long-term plans. Are you planning to start a family? Will you need extra space in the coming years? Anticipating future needs can help you choose a home that will grow with you.
- Research the neighborhood: Understanding what features are common or desirable in your target area can also guide your decision-making. For instance, if you’re looking in a neighborhood known for its outdoor activities, you might prioritize a home with a large yard or proximity to parks.
Step 5: Educate Yourself on the Home-Buying Process
- Initial buyer consultation with your Realtor: When you come to us as a new client, we want to ensure that you are an informed consumer so that there are no surprises during the homebuying process. We strive to address any questions and potential concerns before they arise in order to make this process as smooth and seamless as possible.
- Understanding due diligence: In North Carolina, it's crucial to conduct thorough home inspections before finalizing your purchase. This includes home, pest and radon inspections. On specific properties, it may be necessary to conduct a septic and well inspection. We also recommend a survey to ensure there are no encroachments, easements or other potential issues. These inspections are done during the Due Diligence period which allows us to get the full picture on the property in order to negotiate for seller repairs or other concessions.
- Familiarize yourself with closing costs: Be prepared for closing costs, which typically range from 3-5% of the home's purchase price in North Carolina. These may include attorney fees, lender fees, title insurance, and various other charges.
By following these steps, you'll be well-prepared to make the transition from renting to homeownership in North Carolina. Remember, buying your first home is a significant milestone, so take your time, do your research, and don't hesitate to reach out to us with questions! With proper preparation and guidance, you'll be well on your way to finding your dream home in the beautiful state of North Carolina.
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