New year, new home? Here’s six steps to help you stick to your New Year’s resolution to buy a home in 2023.
1. Start saving for a down payment.
Ready to buy a house? The first step is to start saving. Being ‘ready,’ though, means more than having a few thousand in your savings account. How much debt do you have? Anything set aside for emergencies? Many financial advisors suggest saving to buy a home starts with being debt-free (or close to it) and having an emergency fund of 3-6 months for living expenses stashed away.
How much you should save depends on your income, how much home you can afford and how soon you want to move. For example, let’s say that a year from now your goal is to buy a $300,000 house with a 5% down payment. That means you need to save $15,000. Now, divide that by 12. You’ll need to save $1,250 a month to reach that goal. A quick gut check against your current cash flow—your present income versus expenses—will show you how realistic your goal is and if you need to make any adjustments.
To help you save, start a home-buying budget. Use the “25% Rule”: Make sure your estimated monthly costs to buy a home (including your mortgage and HOA fees, taxes, insurance, etc.) won’t amount to more than 25% of your monthly income. Be sure you save and budget for other costs, too, including:
- Closing costs (typically 3-6% of the loan amount)
- Move-in expenses (moving costs, home repairs, upgrades, furnishings, etc.)
- Home maintenance costs (utilities, yard and pool service, pest service, etc.)
- Emergency fund (for things like when the water heater bursts)
Need help with a down payment? The Federal Housing Financing Agency (FHFA, which is different from the Federal Housing Administration (FHA)) has made some big changes in recent months to make it easier for first time and lower income home buyers to get into homes. For buyers with incomes at or under their area’s medium income, lenders like Offerpad Home Loans* also have special programs to help buyers get into a home with little or no money down, reduced interest rates and expanded qualification criteria. Click here to speak with an OPHL loan expert to find out more.
How much home can you afford? Download the free mortgage calculators in the Offerpad Home Loans mobile app and find out!
2. Build your credit score.
Your credit score is one of the biggest factors lenders look at when you apply for a home loan. And like a down payment, the higher it is, the better. The minimum credit score for a mortgage depends on the type of loan and the lender. A conventional mortgage typically calls for a minimum credit score of 620, but some government-backed loans can be secured with a score as low as 500. (Check with your lender on the lowdown on low scores.)
To make sure your score is as high as possible when you’re ready to buy a home, add a debt reduction allowance to your home-buying budget to pay off as much debt as possible. Make payments on time and check your credit score often to correct any mistakes and clear up any discrepancies. An important thing not to do, though, is cancel your cards after they’re paid off. Doing so may actually reduce your score. (Who knew?) Get more guidance and free advice on how to improve your credit rating from an Offerpad Home Loans loan expert.
What credit score do you need to buy a home? Talk to an Offerpad Home Loans loan expert to see the best loan options in your credit score range.
3. Get pre-approved for a mortgage.
Once you’ve saved up for your down payment, it’s time to start shopping for a mortgage. Comparing rates and terms from competing lenders is an important step to find the best loan to fit your budget and needs – and help you save money, too.
The larger your down payment, the smaller your mortgage payment (because you’ll be paying less interest on your home loan). While most lenders usually offer more favorable rates on conventional mortgage loans and do not require private mortgage insurance for borrowers who make a down payment of 20% (which helps you save substantially on your monthly mortgage), there are several programs available to help buyers who can’t put that much down.
The most common types of loans are:
- Conventional — Not guaranteed by the government, some conventional loans available to first-time buyers require as little as 3% down.
- FHA — These are insured by the Federal Housing Administration and allow down payments as low as 3.5%.
- USDA — Guaranteed by the U.S. Department of Agriculture, USDA loans are for rural home buyers and usually require no down payment.
- VA — Guaranteed by the Department of Veterans Affairs, these are for current and veteran military service members and usually require no down payment.
You also have options when it comes to the term, or length, of your mortgage. Most home buyers go with a 30-year fixed-rate mortgage (where your interest rate stays the same over the life of the loan). A 15-year loan typically has a lower interest rate than a 30-year mortgage, but the monthly payments are larger and you pay it off in half the time.
Once you’ve settled on a lender, submit an application and request a pre-approval letter from them. Pre-approval doesn’t guarantee a loan (or protect you from rising interest rates) but does help set you up for final approval once you find a home to buy. It may give you an advantage over other buyers as many sellers ask for a pre-approval letter before accepting an offer.
Work with a lender, too, that will let you lock in your best interest rate at the time you’re pre-approved. This way you won’t run the risk of rate increases blowing your budget and putting the home you want out of your price range. Offerpad Home Loans, for example, let’s you lock in a current interest rate for 90 days while you shop for a home.
Want to buy an Offerpad home and need help with a mortgage? We got you covered! Use Offerpad Home Loans and get exclusive benefits like:
- Seller-paid interest rate buy downs
- Closing cost credits
- Easy application for fast pre-approval
- Locked-in interest rate for 90 days
- Eliminate mortgage insurance with as little as 10% down
- Down payment assistance
4. Research before you start to look.
Buying a home is more than finding a pretty ‘face.’ You want to find the right home in the right price range, in the right place. Look for the most affordable house in the best neighborhood to help protect your investment for the long term.
Neighborhood quality and location are important, so spend time driving through the area or communities you’re interested in at different times and days. This will give you an idea of how long your commute to work may be, proximity to schools and hospitals, traffic, noise, the overall condition of homes there, local businesses and access to recreational areas. Would you feel safe and comfortable there? Check on crime rates.
Go to a few open houses. Even if they’re not exactly what you’re looking for or out of your price range, this is a great way to learn more about the area and how a home you may buy there compares to others in that community.
5. Start house hunting!
You can start browsing thousands of homes for sale right here on Offerpad.com. Easily sort and find homes in your area and price range. Then take a few virtual tours to find the features you’re looking for.
Can’t wait to get into a home? We have hundreds of local licensed Offerpad real estate agents to help you see homes in person, too. Click below to download our free handy home hunting checklist and let’s start looking!
6. Stick to your budget.
Just like in love, it’s easy to get excited when you think you’ve finally found ‘the one.’ But try not to let your emotions get the better of you. Stick to your budget and make an offer you can afford. (This is where that 90-day locked-in interest rate really comes in handy.)
To help stay within your budget, try negotiating with the seller on their asking price or see if they’re willing to pay for any needed repairs or to lower their price to cover those costs. You may also ask them to pay some of the closing costs. (Keep in mind, though, that some lenders may limit the portion of closing costs a seller can pay.)
One last tip: Need to sell before you buy? Or a home loan for your new home? We can literally help you save money when you need do more than buy a home. Like serious savings (we’re talking thousands) when you bundle our buying, selling and home loan services.** Yep, that’s Offerpad — your all-in-one place for all your real estate needs.
Happy house hunting!
*Offerpad Home Loans not available in all states. Rates, terms and availability subject to change without notice.
** Offerpad Bundle Rewards are delivered as buyer commission rebates, lender credits, reduced Offerpad EXPRESS service fee, or seller credits. Offerpad Bundle Rewards are not available for solutions purchased under Offerpad’s Agent Partnership Program or Homebuilder Services program. Additionally, Offerpad Bundle Rewards cannot be combined with any other Offerpad discount, credit, or seller/buyer concession. All components of a bundle (sell transaction, buy transaction and home loan) must be completed within a 6-month time frame to qualify as being part of a bundle. Offerpad Bundle Rewards is not available in Alabama, Kansas, Missouri and Tennessee. Terms and conditions apply. Rewards, savings and discounts vary and may not be available in all states or situations. Speak with an Offerpad Solutions Advisor or Solutions Expert for details. Subject to terms and conditions available at https://www.offerpad.com/terms-of-use/.
Editor’s Note: Offerpad is not a lender. Information on this website is provided for informational purposes only and is not a solicitation or advertisement or offer of a loan or extension of credit. We do not offer financial advice, advisory or brokerage services. The views and opinions expressed herein are those of the respective authors and do not reflect the policy or position of Offerpad, its officers, parents or affiliates.
Offerpad does not directly offer mortgages or consumer financial products, accept applications or approve loans, but it works with partners that may. Offerpad is not responsible for the accuracy of rates, APR or loan information posted by our partners. When evaluating offers from our partners, please review their terms and conditions. Offerpad may receive compensation or other benefits from our partners, if you obtain a financial product from our partners.