What do I need to buy a house?

So you’re thinking of buying a house and wonder what you need to buy a house? In short, you need three things:
1. Good credit score
2. Money for down payment and closing
3. Know the process

Let’s go into more detail.

What credit score do I need to purchase a house?

Well, that depends on the type of loan of which bank is underwriting the loan. However, according to Credit Sesame, a FICO credit score of 600 or above would be okay. Though, you could still buy a house with a score lower than 600. You can check your credit score here for free. However, the higher the credit score, the lower the rate. So you may want to strengthen your credit score while saving for a down payment.

How much money do I need for down payment?

Conventional wisdom holds that you need 20% down payment in order to buy a house; however, if you are starting out, you technically do not need such a huge amount. First home buyer can take advantage of the FHA loan which requires only 3.5% down payment (click here to see benefits, requirements and restrictions.) However, you would need to pay premium mortgage insurance (PMI) (a monthly fee added to your mortgage payment) if you do not have 20% down payment. Some lenders offer 100% finance, so you don’t need money down for a house payment. Though, I don’t recommend pursuing such option as clearly, if you don’t have the money for the down payment, you may not be financially ready as there are many hidden fees involving in owning a house. Money Under 30 has a great article detailing exactly how much cash you need to buy a house.

If you are a healthcare professional (Doctor, Dentist, etc.), you may be eligible for Physician Loans, which requires no money down and no PMI. Interest rate for physician loan is typically a bit higher compares to conventional loan. Find out more info here.

Understand the process of buying a house:

First, set a budget
You need to know and commit to the maximum amount of the house that you are willing to pay for. An important note, just because bank approves you for a certain amount, such amount should NOT be your budget. You could be easily approved for more than what you could afford.

Get a pre-approval
You can get this done through your local bank or mortgage broker. You need to get a pre-approval prior contacting the agent as many agents do not take you seriously unless you are pre-approval.

Find a good realtor agent
Very important step. You want to find an agent that works for you, not for herself. What I mean here is there are agents that look out for their clients, for there are agents that just want close the sale. A good realtor agent can help you navigate through the complex world of finding a house, including not only finding the house of your dream, but whether it would be a good investment based on local economic and real estate condition, and negotiation.

Double check on the home inspector and inspection report
Once you find the house that you like and agree on a price, the next step is to find home inspector. Many realtor agents work with home inspectors and could easily recommend you one, but do your homework when selecting a home inspector. Make sure the home inspector is experienced and highly reviewed. Also, read that inspection report thoroughly before the option period expires.

More Diggings
You can change your house, but you can’t change your neighbors. So before the option period expires, visit the neighbors and talk to them. Ask yourself, can you live next to this person?
Call the HOA, check the rules and ask what kind of problems do they usually have? You can also check HOA Facebook groups and have a feel of the community and neighborhood.

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