How to Become a Homeowner

Between high purchase prices and lack of inventory, becoming a homeowner might feel like a distant dream for some these days. Let us give you some hope! Even if you’re not in a position to buy right this instant, there are things you can do to get on the path to becoming a homeowner. In fact, you might be feeling pretty good about your options by the end of this list!  

Save Your Money to Get Your Own Place

Before you roll your eyes, we know that you know to save for a downpayment. However, there are additional costs associated with the home-buying process that may not be so obvious and so it’s better to think about them early in the process. 

Appraisal

Appraisals are required by the lender to make sure the home is a good investment and you’ll likely need an appraiser recommended by your lender. The appraisal cost will depend on the size of the home but typically range from $400-$600.

Inspection

Inspections aren’t required in Washington state but we think spending the $400 (or so) is well worth discovering a hidden flaw in the house that could either be a dealbreaker or addressed and covered by the seller. 

Earnest Money

While not required, it’s common to put down what’s called “earnest money” after your offer is accepted which you can think of as a deposit on the home purchase. The amount is typically 1-3% of the purchase price but the good news is that it will end up as a credit on your closing statement! 

If the idea of a downpayment has you feeling down, just know that it’s possible to get your own place for no money down or even as little as 3.5%. As always, we recommend analyzing your budget to cut back on what you can because the higher the down payment, the more you’ll save on interest. 

To Become a Homeowner, Improve Your Credit!

We’re sure that this comes as no surprise. However, it’s not always clear where to start… Building your credit score is rarely a quick fix, so it’s important to start improving before you even start looking. 

Here are elements that factor into your credit score ranked by most to least impactful. 

Payment History

If nothing else, always ALWAYS make the minimum payment on time! 

Utilization

Aim to use 15% or less of your total credit limit. If you pay off your card each month, you won’t have to pay any interest. In some cases, you may be able to ask your credit card company to increase your limit and thereby reduce your utilization. Just make sure you do this responsibly, as it could trigger a hard inquiry. 

Collections

Prevent derogatory marks on your credit record because they can stay on there for 7-10 years! 

Age of Credit

You don’t have to go into debt to establish good credit. So, definitely don’t avoid it because having no history will do you harm. To assess your creditworthiness, lenders need to see proof of how you use credit. The longer your credit history, the better!  

Total Accounts

The more accounts you have, the better, but this doesn’t mean you need to open a bunch of credit cards. You can build credit with car loans, personal loans, federal education loans, phone plans, and by being an authorized user on someone else’s credit card. 

Hard Inquiries

Too many inquiries into your credit can be a red flag to lenders, so be selective when applying for anything that requires a credit check. 

Calculate What You Can Afford Monthly

Take a long hard look at your current expenses. Then, consider the added expenses that come after a sale goes through, such as utilities, potential HOA fees, and incidental expenses (like a hot water tank going out). It’s critical to calculate what you can afford to spend on a mortgage on a monthly basis because there is a chance you may get pre-approved for a home loan amount that you can’t realistically afford. 

Get Pre-approved for a Home Loan

You need to have a clear idea of what you’re pre-approved for so you know your price range when looking for a house. In a competitive market, there’s no time to wait until you fall in love with a house to then start the process of pre-approval. Besides, it can be a time-consuming process. To shorten the time, gather all your important financial paperwork into one place, such as your last two years of tax returns, bank statements, loans, and other assets such as savings or retirement accounts. 

If you’re not acquainted with the different types of home loans that are out there, start by researching the most common types below. There are pros and cons to each, so don’t be afraid to ask your lender questions. 

Private Loans

• Conventional - 3-20% down payment

Government-backed Loans

While these loans make it easier to get your own place, they often require private mortgage insurance (PMI) which is a monthly fee on top of your mortgage. Once your mortgage reaches 80% loan-to-value, which is either paying off 20% of your mortgage or a combination of your payments and home value increasing, PMI can be removed from your loan. 

• FHA - 3.5%
• VA - 0%  
• USDA - 0%

Choose a Real Estate Agent Early

Similar to mortgage pre-approval, don’t wait on finding a real estate agent. You may need to shop around to find one you like! In all seriousness, finding the right agent can save you thousands of dollars. We’ve seen it, time and again! Your agent should be your top advocate, and work to get you the best deal while making the whole process as smooth and low-stress as possible. 

If you have any questions about how to become a homeowner, we invite you to drop by anytime and chat with our agent on duty! We’ve helped so many people like you achieve their dream of homeownership, so let us know when you’re ready to make a plan!