Written by: Nicole M. Garcia
Buying a home for the first time is an achievement and incredibly exciting. However, it can also be confusing and scary if you are not aware of what is required in order to close the deal. Deciding whether to purchase a home during the COVID-19 adds even more pressure and uncertainty. In this blog we will look at some of the necessary steps to take when planning to purchase a home and how COVID-19 is affecting the real estate market in South Florida. First, Here is a checklist of some of the important steps you should take when preparing to obtain a mortgage in order to purchase your home.
- Pay down your debt: One of the first things you should focus on is paying down the total amount of debt you owe (i.e., your credit cards, paying your bills on time, and raising your credit score). Currently, to qualify for a government backed loan like an FHA loan, it is required you have: a 620 credit score (50% Debt-to-Income Ratio) minimum; or a 640 credit score (45% Debt-to-Income Ratio) minimum when a bond program, gift funds or down payment assistance is present; or a 680 credit score for a manual underwriting.
However, to qualify for a Conventional mortgage loan the guidelines will depend on the lender/underwriter. Typically a minimum credit score of620or higher is required. The higher your score, the more likely you are to get the best interest rate and terms for your mortgage.
- Know your homebuying budget and get preapproved for a mortgage: A mortgage preapproval is extremely important and a must before you even go looking at potential properties. A mortgage preapproval can give you an idea of your mortgage eligibility and how much money you could borrow. It also indicates to your Seller that the Buyer is ready and able to execute the sale.
- Learn about the homebuying process: Understanding the Mortgage process is important, as it will prepare you for the process. Typically the steps are: (i) Get preapproved for a mortgage by a lender; (ii) Shop for a home and make an offer; (iii) Secure a mortgage; (iv) Have the home inspected and appraised; (v) Complete mortgage underwriting and closing.
- Save, Save, Save, Money in the Bank: It is suggested that that you put 20% down when purchasing a home. However, it is not a requirement. Those that are able to save and put 20% down will avoid having to pay private mortgage insurance (PMI) and reduces the amount you will need to finance and pay interest. However, if a 20% down payment is out of reach or would prevent you from paying closing costs or expenses after the sale, you have options. There are government agencies and lenders that offer a first-time homebuyer programs that assist with down payments and closing costs.
- Budget for expenses beyond your mortgage: A home loan is a long-term, monthly expense and preparing for the unexpected is key! It is important to be aware of how much money you can realistically spend on a monthly basis. Some of the extra monthly costs that come with a home are: (i) yearly property taxes, (ii) homeowners association fees (if applicable)(iii) utility costs and (iv) amenities and upkeep.
- Decide what type of mortgage is right for you: When choosing the type of mortgage you purchase it is important to know the different types of mortgages and the different types of interest rates. You can choose between a government backed mortgage or a conventional mortgage. Additionally, you must consider whether an adjustable interest rate or a fixed interest rate is best for you.
- Consider the length of your home loan: Most homeowners choose between a 15- or 30-year mortgages, though other durations may be available depending on the lender. To learn the pros and cons contact us today!
- Documentation required for mortgage approval: (i) federal income tax records for the past two years; (ii) last 30 days paycheck stubs; (iii) 2 years of W-2’s; (iv) any other documents a mortgage lender might want to see, such as credit card and student loan account statements and your credit score.
**Note: This is not an exhaustive list but meant to be a guide to provide you with a bigger picture so you know what to expect and to plan accordingly when purchasing a home.**
So you’ve saved money, prequalified for a mortgage loan and are ready to start searching for a home, however purchasing a home comes with its risks and it is no secret we are facing unsettling times due to the COVID-19 pandemic. Some millennials, like myself, are secretly hoping and praying this causes the market value of homes to drop however as of right now, it seems it unlikely to occur. The higher end of the market (i.e., new luxury homes and condos) has lowered prices even before the pandemic restrictions were put into place. However, the markets middle-class is stronger because there are very few newer homes within its price range that have been built or available. Demand is still high and the supply is low therefore, this will influence the market value of the properties.
How COVID-19 will affect South Florida real estate is a big mystery. But it is certain thousands of people and businesses will have trouble paying their rent and mortgages because of lost jobs and lost business. If you are currently planning on purchasing a home and are unsure of how to make the next step, it is important to consult an experienced attorney to learn how you can prepare to purchase a home and protect your future investment. Buying a home doesn’t have to be so scary and you don’t have to go through the process alone. For more information on purchasing a home, contact The Law Office of Ray Garcia, P.A. at 305-227-4030 or legal@raygarcialaw.com, anytime.
Law Office of Ray Garcia, P.A.
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