Are you ready to buy a Bakersfield home? Join the club! Check out this blog post before forking over a huge chunk of change to buy a home.
Buying a home can be like learning to ride a bike. The right guidance can lead to exhilarating success, but mistakes can leave a painful mark.
This step-by-step guide will provide tips and insight for home buyers, including budgeting, dealing with a mortgage lender, hiring a REALTOR®, and deftly handling each step of the transaction.
🏠Speak With A Lender & A Realtor First
There are many steps in the home buying journey, so it’s imperative to start off in the right direction. Speaking with a Realtor and a mortgage lender from the outset will arm you with the precision to properly prepare for the road ahead.
🏠Prepare For The Lender
Millions of people buy homes every year, so there may be ample competition for the house of your dreams. Get a solid loan pre-approval before you start looking for a property, because in most markets it’s required to even make an offer.
A lender will begin by running your credit and asking for some basic documentation, so it’s best to do the legwork ahead of time.
Furthermore, if your credit needs improvement, a good lender will have specific advice about the fastest way to boost your credit score. This is much more effective than paying a credit repair company to do the same thing.
Your lender will also alert you to any other potential issues and guide you through the steps below.
Start Saving Early
Like trying to lose a few pounds, it’s difficult to get in financial shape all at once. Saving an optimal amount of money requires consistently sticking to a budget, which may require sacrifice and cost cutting.
Early savings will help overcome financial roadblocks and make it much easier to qualify for a loan, including FHA loans and VA loans that require small down payments.
FHA loans typically require 3.5% down and VA loans typically require no down payment at all.
Closing costs can also be a major cash component. Many borrowers are surprised by the total amount of closing costs, despite receiving an estimate from their lender.
Those costs include the appraisal, title insurance, escrow fees, and pre-paid property taxes and insurance. Closing costs can vary based on lender and area, but run between 2% and 5% of the purchase price.
Improve Your Credit Score
Improving your credit history to qualify for a better interest rate is achievable with some basic planning and preparation.
More than 30% of credit reports contain errors that might have a negative impact on a person’s FICO score. Let your lender perform a hard credit check and review the results for mistakes and inaccuracies that will hinder the home-buying process.
Get More Than One Mortgage Quote
Interest rates vary among banks and specialized mortgage lenders. According to research conducted by Freddie Mac, homebuyers who compare mortgage terms from several lenders can save an average of $2,000. Buyers may save money through reduced mortgage rates, reduced closing costs, or a combination of both.
Mortgage interest rate markups vary among mortgage lenders. When a bank makes too many loans in one state, it may hike interest rates in an effort to discourage new customers from applying. There may also be variations in the rates across lenders according to the way they are compensated.
Check out a related blog post: How to Navigate a Mortgage Interest Rate Buydown
Know Your Maximum Mortgage Payment
Knowing your monthly budget is the first step toward home ownership. It’s easy enough for buyers to compare the expected monthly cost of a home to their monthly rent payment.
There are numerous online mortgage calculators to help, but you’ll need to know some basics like the interest rate, property taxes, and hazard insurance. There may also be a mortgage insurance premium and perhaps a HOA fee to include in the calculation.
In addition, a homeowner must cover the property’s maintenance and repairs. Annual maintenance expenditures for heating, ventilation, air conditioning, plumbing, electrical, and landscaping can equate to around one percent of the value of a typical property.
Choose a monthly repayment schedule and a payment method that is affordable and convenient. Keep that benchmark figure in mind when searching for the right house. Having a clear idea of your financial limits makes it much easier to make smart decisions.
Don’t Make Large Purchases
Financing a big purchase might lower your credit score and limit your borrowing capacity. One of the most important metrics used by lenders is the LINK debt-to–income ratio, which compares your monthly debt payments to your monthly income.
A general guideline, a debt-to–income ratio of 43% or less is optimal. While DTI as high as 50% can be acceptable for some loan, the term may be onerous.
Therefore, there’s a direct correlation between your total debt and your borrowing capacity. Your borrowing power will decrease if you finance a significant purchase (like a vehicle) before applying for a mortgage.
While making the largest purchase of your life, it’s smart to simply postpone any major expenditures until after you are comfortably making your mortgage payments.
Organize Your Paperwork
It’s much easier to be prepared in advance than scrambling around trying to find documents.
It’s important to gather these documents ahead of time, since you may be asked for the same information more than once by different parties involved in the loan application process.
Your loan officer will need to review and verify various documents, including tax returns, bank account statements, pay stubs, W-2s, 12 months of rent payments, and more.
People applying for a conventional loan should be especially diligent in gathering their financial paperwork. Be proactive with your paperwork and enjoy the best loan terms possible.
Get Your Mortgage Pre-Approved
With all your finances in order and documentation at your fingertips, it’s time to obtain the coveted pre-approval letter.
It’s really a non-starter if your lender has not thoroughly investigated your entire financial situation, including your credit score, income, savings, and employment record. There’s a lot of work involved in every transaction, so having to cancel because something was missed will upset all parties.
In the same way that many businesses provide free estimates, mortgage lenders will provide home buyers with free pre-approvals. Property Wonk can refer you to a top local lender for a pre-approval.
🏠Find Your Bakersfield Home
Now comes the fun part – finding your new home. You may have already found your REALTOR® but here are a few tips anyway.
Find the Right REALTOR
Finding the right REALTOR® is crucial when you’re buying a property. A skilled and knowledgeable REALTOR® can make all a huge difference in achieving your real estate goals.
The ideal REALTOR® should have a thorough understanding of the local market, including current trends, pricing, and inventory. They should also be well-versed in the entire real estate process, from making offers to closing the deal.
To find the best REALTOR®, speak with several candidates and ask for referrals from trusted sources such as family, friends, and colleagues.
When choosing a REALTOR®, it’s important to consider factors such as experience, industry connections, communication style, and overall compatibility with your needs and preferences.
You’ll be working closely with your REALTOR® for an extended period, so it’s important to choose someone with whom you feel comfortable and confident.
Read more: 16 Tips to Find the Best Bakersfield REALTOR®
Avoid Dual Agency
It’s common practice for two REALTORS® to be involved in a property purchase. A buyer’s agent is one who looks out solely for the interests of the buyer, while the listing agent represents the interests of the seller.
Just as you wouldn’t hire the same lawyer to represent both you and your adversary, your REALTOR® should not represent both sides of a deal.
Sometimes buyers will directly contact the listing agents of the homes in which they are interested. Buyers often think that using the listing agent for representation will give them the inside track to a better deal. Unfortunately, they don’t realize that the listing agent has an obligation to get the highest price for the seller.
You might not need a REALTOR® right away, but if you’re getting serious about making an offer on a house, choose a REALTOR® who will focus exclusively on your needs.
Research Areas
Many people know where they want to live. Friends or family may live in a certain area or it may be close to work. Barring any red flags, that’s where they will look to buy a home.
For those who are starting from scratch, it’s important to perform some due diligence. Research school ratings, crime stats, and local amenities to help determine the optimal area for you.
All these criteria can also affect future resale value, so consider carefully even when your search is limited by a maximum purchase price.
Search for Homes Online
Once you’ve pinned down the areas you like, go online and start checking out home listings directly from the Bakersfield MLS.
You can also download the best home search app in Bakersfield. It has more features than the national home search sites but it’s local and private.
Once you’ve identified some homes that look promising, it’s time to pound the pavement.
Tour Home Listings
There’s no substitute for being there in person. Seeing a home with your own eyes will help you visualize what it would be like to really live there. Also, houses often look much different in photos than they do in person. Photos can make spaces look much larger and more attractive than reality.
It’s now common for listings to show virtual tours or 3-D models of homes for sale, which enable remote viewing of the property’s layout and characteristics. However, you should always see a house in person before making an offer.
Your REALTOR® will arrange all showings according to your schedule and the listing’s showing availability.
When attending open houses, remember that the hosting REALTOR® is representing the seller. Don’t let the REALTOR® know how you really feel about the house or anything else, since it might be used against you later.
Make An Offer
Hopefully you didn’t have to see too many homes, but the time has arrived to make an offer.
In a competitive real estate market, with tight inventory and multiple offers on most homes, a low offer will wind up in the round file. Conversely, in a flat or declining market, making a lower offer might be acceptable.
Your REALTOR® should know whether the home’s listing price is close to the most likely appraised value. Given that information, your price limit, and whether other offers have been made, you can submit the strongest offer possible. Cross your fingers!
Negotiate Terms
If your offer is not accepted outright, you may receive a counteroffer from the seller. In that case, some contract terms will need to be negotiated, such as price, seller concessions, the closing date, or contingency deadlines (e.g. appraisal, inspections, loan approval).
Your REALTOR® will explain all of your options. There are numerous terms in a typical purchase contract, so always think through every option. Once the property is under contract, it’s very difficult to change things later without risking a cancellation.
🏠Move To Closing
You’re officially under contract, so not it’s time to check under the proverbial hood and stick to the timelines.
Deliver The Deposit
Successful deals require both parties to have skin in the game. The buyer’s skin is an earnest money deposit (EMD), which must be submitted within a few days of a fully executed contract.
The deposit will be credited toward the purchase price at closing or will be given to the seller if the buyer does not meet the terms of the contract.
Always Get Inspections
A home inspection is a visual examination of the house and some testing of the mechanicals of a house. House inspections typically take a few hours and cost $300 to $800, depending on the size of the property. The inspector will send the buyer an inspection report that covers their findings, complete with pictures and recommendations.
In most cases, a buyer will be able to conduct inspections as part of the purchase agreement. Buyers can then renegotiate the conditions of the sale with the seller based on the results of the inspections.
The most common problems include:
- Plumbing issues
- Faulty wiring
- Roof problems
- Heating/Cooling system defects
- Inadequate attic insulation or ventilation
- Air and water penetrating cracks and window perimeters at exterior.
- Other safety issues
Note that sellers in highly competitive real estate markets may refuse to make any repairs. Although buyers can agree to not request any repairs, home inspections should never be waived. A major issue could be discovered that would prevent any buyer from moving forward. Who wants to replace a sewer line after closing on a home?
The Appraisal
The appraisal is typically ordered by the lender within days of an accepted offer, but is not usually completed until the inspections are completed and repairs agreed upon. Thus, it’s typically the last step, just prior to final loan approval.
If the house doesn’t appraise for the agreed purchase price, then the contract will either be canceled or the price will be renegotiated.
There can also be repairs that are required by the lender but not included in the initial repair list; which must be made as a condition of closing.
Closing Time
If all contingencies are released, repairs are completed, and the lender is ready to close, the REALTORS® and the title company will coordinate a closing date.
Once your funds are received, the mortgage company has funded the loan, both parties have signed all of the documents, and the grant deed has been recorded, you can pick up the keys to your new home.
🏠After Closing
Becoming a homeowner may be a great way to augment your family’s wealth. The typical U.S. homeowner has forty times as much wealth as the typical U.S. renter because property values grow on average by around seven percent annually.
Although increasing property values is a clear benefit for homeowners, they can only enjoy that advantage if monthly loan payments are made on time.
Follow some basic guidelines that will help you stay on track:
- Your mortgage payment should be only as much as you can comfortably manage. You should maintain a decent margin to allow for a change of circumstances – like inflation!
- Pay as little as possible upfront to avoid draining your entire bank account to close on a house. Cash is king so keep as much as possible.
- Invest in a life insurance policy that will, at the very least, pay off your mortgage in the event of your death.
The loss of a household breadwinner due to sickness, divorce, or death is the major reason for mortgage default or bankruptcy. If you can avoid these pitfalls, you’ll be able to keep your house and generate a legacy of wealth for years to come.
🏠Final Words
Buying a home can be overwhelming, but with the right preparation and guidance it can also be an exciting and rewarding experience. The steps and tips we’ve shared will help you make informed decisions, avoid common pitfalls, and ultimately find the home of your dreams.
At Property Wonk, we’re dedicated to providing valuable information and resources to help homebuyers navigate the complex process of buying a home.
