It's that time of year again- time to get all those ducks in a row if a home purchase is on the horizon. Buyer interest is coming back to life after the new year. We even ran into a few instances of multiple offers last weekend. Whether you're thinking of buying a new place, or maybe it's time to sell, let's get you ahead of the game this year with some prep-work that will make your upcoming transaction nice and easy.
Planning on making a purchase this year?
Get Pre-approved: Step #1 is always to talk a lender to get your finances rolling. Too many a buyer has seen a home hit the market that they'd love to buy but not be able to purchase because they didn't have their financing squared away first. Getting pre-approved is an essential first step to set yourself up for success that can take little as a few days but sometimes takes weeks or even months (we're looking at you, fellow self-employed people). Often times you will find out that getting pre-approved early comes with extra benefits. Sometimes you'll learn things about how to structure your finances in the year (yes, speaking with a lender a year early is a great idea!) leading up to your home purchase that might improve what your approval amount would be or could lower the fees associated with your transaction by eliminating unnecessary steps.
Two Pre-approval Myths:
A. A commonly held myth is that pre-approvals only last for a certain amount of time. This is due to the limit on how long a credit pull is valid for. However, as long as there aren't major changes to your financial situation or interest rates, your pre-approval can stay valid for a year or more.
B. Another commonly held myth is that getting pre-approved early will ding your credit. This can be true if you sign up with an online lender and they run a hard credit check right away when you apply. However if you work with a local lender and they understand that you are getting ahead of the game by getting pre-approved early you can start with a soft-credit pull which doesn't have any impact on your score. You'll eventually need to pull your credit when it's time purchase a house, but you can start with the soft-credit pull and build your financing plan well ahead of time.
Discuss Creative Financing Solutions: In addition to the usual conventional loan programs, some lenders these days offer programs to allow buyers to write offers as "cash" buyers, there are buy-before-you-sell programs, options for bridge loan financing, and more. As we see competition ramp up, being ready to use some of these programs may make all the difference in securing the home you really want. You may end up competing with other buyers in the market who are also using these programs to their advantage so it's best to make sure you are set up with these tools in your back pocket, too.
A Note for our Fellow Self-Employed People: When you become self employed your financial picture takes on new challenges from a lending perspective. We get it, we're self-employed too! The details as to why are myriad, too many to cover here, but suffice it to say, as soon as you decide to make the jump into self-employment, you will have much that you should discuss with your lender to make sure your finances are structured in such a way as to keep yourself lend-worthy. In particular, checking in with a lender about your home buying plans for the next year or two before filing your taxes is highly recommended.
Figure Out Down Payment Funds: The days of the 20% down payment are long gone. Often times putting just 5% down can be a wise move. If it's time to buy and saving up for a down payment hasn't been in the cards, keep in mind that parents or other family members can provide gift funds to bridge the gap between how much you need to get to get to your desired down payment amount and what you currently have. Is all your cash locked up in a 401k? No problem, you can borrow that money "from yourself" to fund the down payment for your purchase.
Thinking about selling a home this year?
Pull a HELOC: If you hope to access equity from your home for a new purchase, talk to a lender about pulling a Home Equity Line of Credit early (emphasis on early, meaning like now-ish). These often take four to six weeks to finalize and are a cost saving tool that gives you flexibility, more negotiating power and potentially thousands in saved fees back in your pocket. Having a HELOC in place before you find your new dream home will almost certainly be to your benefit.
Pre-Sale Prep: If you have a house to sell, talk to your Realtor early about house prep, repairs that might need to be completed, and a marketing plan. Sometimes preparing the home for sale can take a few weeks or months. Don't wait until the home you want to buy comes on the market to start this process.
If you're thinking about buying or selling this year, let's have a chat and we'll make sure to cover everything that you need to know to ensure that you are setting yourself up to knock it out of the park when it's time to make your move.
Until next time!
Allison and Ken
