2020 is an excellent time to consider picking a new address. This year, interest rates are extremely low, and that there are a variety of options to choose from. Keep in mind that even though it’s an excellent year to buy, it’s also essential to have some preparation for this journey.
At Zumbly, we streamline the home buying process for real estate investors, first-time homebuyers, and Airbnb property owners. Here’s a checklist to help anyone that is interested in purchasing a home in 2020.
Review Income and Spending
Before buying a home, it’s vital to understand your financial situation based on income, financial assets, and spending habits. This can help establish a home budget to obtain an excellent mortgage rate.
Review your investment, credit card, and banking statement thoroughly to ensure that buying a home will not be taking a big chunk out of your spending for unnecessary expenses. Evaluate your income to see if it has increased over time or not.
Maybe it’s a good idea to ask the boss for a raise or consider a higher paying job. After that, review your current housing spendings, such as a mortgage, insurance, rent, and monthly homeowners association fees. This will help you decide if you can afford to buy a more expensive home or if you should scale back and find one that’s more affordable.
A homeowner has a 20% down payment ready for a new house. However, other mortgage options can give a lower down payment. However, they usually require private mortgage insurance to do that. Some companies protect lenders if their mortgage has defaulted. The lower your down payment and credit score, the more you will have to pay for the private mortgage insurance, therefore taking a significant chunk out of the monthly house budget.
Either way, the HOA requires a minimum of 20% down payment. Plus, a significant down payment can help you save money over the span of the mortgage. For example, a 20% down payment on a $300,000 home with a 30-year mortgage could save an individual over $54,000 over a lifetime of loans. This is a wise investment compared to a 5% down payment.
Improve Your Credit Score
When it comes to buying a house, the three factors that determine the home loan are income, credit score, and down payment. It can take several months to address the credit report issue, but there are some ways around it.
The first step is to request a copy of the full credit report from the three agents. Check each statement thoroughly for errors, mistakes, and ways to remedy it. Then pay down the balance as much as possible while meeting the down payment saving goals.
It’s vital to improve the utilization ratio, which is the percentage a person owes divided by the total credit line. This will increase the credit score more than paying off a single credit card. The goal is to aim for a 30% or lower utilization ratio for all credit cards.
Gather the Paperwork
The essential part of buying a home in 2020 is to keep everything organized. This is the perfect time to organize all the necessary paperwork to begin the journey of being a homeowner. The essential paperwork that is required is the:
- Federal and state taxes for the last two years, along with the W-2 or 1099 forms.
- Comprehensive statements for the bank accounts of the last month.
- Statement for investment accounts.
- Don’t forget loans, along with minimum monthly payment.
- Income statement or letter from the employer.
- Additional records that show proof of rent payment, bankruptcy, foreclosure, recent divorce papers, gift letters, and much more.
- For any business owners out there, it’s imperative to prepare a profit and loss statement to verify the income.
Choose a Broker
It’s vital to have a trustworthy and knowledgeable broker. With this in mind, a face-to-face interview to ask the agent about his or her experience, availability, and communication style can make a huge difference.
Don’t forget to ask about the fees and recent success stories, along with references. Understand that an agent can provide guidance through the ins and outs of the real estate and market trends. They act as advisers to offer valuable knowledge and perspective.
A skilled realtor has a significant network of professionals such as lenders, attorneys, and contractors who can help renovate the house to get some pretty good deals.
Understand The Real Estate Trend
According to real estate experts, the prices in real estate will continue to rise by 2.8% in 2020. When it comes to mortgages, the interest rate will be decreasing in 2019 and drop below 4% in 2020. Economic expert predicts that in 2020, the interest rate will be around 3.2% for a 15-year mortgage and 3.7% for a 30-year mortgage.
What High Prices Mean for Buyers?
Anyone who plans to purchase a home should get ready for an expensive market. With this in mind, it’s imperative to budget wisely. Avoid rushing into a home purchase that does not financially make sense.
If putting down 10% on a 15-year conventional loan is impossible, then it’s probably not a good idea to purchase a home in this market. Down payment of less than 10% will destroy the budget with a higher than average monthly mortgage payment.
Ready to make a purchase? Then here are some options to consider:
- Make sure to save for a five-figure down payment.
- Find the least expensive home in the best neighborhood that is affordable and upgrade as the income improves.
- Expand the search in a less popular neighborhood.
Are those high prices worth it? Find out using our estimated value scores on Zumbly.
What Do Lower Rates Mean for Buyers?
Since mortgage interest rates will be low, it’s best to go for the conventional 15 years fixed-rate mortgage. That way, anyone can feel secure in knowing what their payment will be over the life of the loan.
Buying a house in 2020 is an exciting journey. However, the prices are high despite a low mortgage interest rate. Luckily, with the right strategy, it can be possible to purchase a dream home. It’s essential to find a trustworthy broker, gather all the financial paperwork, and budget wisely.
The tips and strategies above should help bring anybody’s dream home to reality. Get started looking for your next home at Zumbly, and check out property scores and estimated values to make the process even easier.