Buying a new home gets complicated pretty quickly. From chasing down all of the documents you need to finding a house that actually checks off all of your must-have features, closing can feel like an ever-moving finish line.
Good news: You can take off those running shoes and stop sprinting toward the horizon. We’re about to replace your high-intensity cardio day with a leisurely stroll around the furniture store.
Whether you’re a first-time buyer or a longtime homeowner, learn how Bungalo can help you seal the deal and close on the home of your dreams — no race to offer or bidding war required.
It can be tempting to dive headfirst into the home-buying process, but there’s one important step to take before you can start exploring the listings in your area: getting your credit report.
Your credit score plays a major role in the mortgage process, as lenders will use it to get a complete picture of your finances. While your score is a key component of getting your loan approved, lenders will also look at several other factors, including your income, current property, assets and any outstanding debt.
For the majority of lending decisions, your mortgage lender of choice will use what’s known as your FICO score to determine your eligibility for a loan. Your FICO score is calculated by the data analytics company Fair Isaac Corporation, and it’s based on data from all of your credit reports over time.
Although your FICO score is not the only credit score available, it’s the most widely used and many of the largest lending institutions will ask exclusively for it over other credit scoring systems.
To your lender, your FICO score represents the degree of risk they’re taking on by allowing you to borrow. The higher the score, the less risky the home loan.
If you don’t know where your credits stand at the moment, you can get a report from any of the three major credit reporting agencies: Equifax, Experian and TransUnion. While you can request your report for free every 12 months, you’ll need to pay if you’re checking more frequently. Some authorized organizations (like your credit card provider) will also give you monthly updates at no charge.
The exact formula behind your FICO score is proprietary information held by Fair Isaac Corporation, however, the National Association of Realtors (NAR) has outlined the five most important financial categories and how they each contribute to your overall score:
Now that you know how your score is calculated, it’s time to answer the big question: What score do you need to buy a home?
First, the short answer: According to the NAR and other major institutions, prospective home buyers should aim for 620 or higher.
The longer answer: It really depends on your unique financial history and the lender you decide to borrow from — we’ll get into that in a second, though.
If you’re not at 620 just yet, don’t worry. Even if your credit record isn’t squeaky clean, with so many different types of loans available you’ll still be able to find one that works for your unique financial situation. Plus, you can always put a temporary pause on your search to build up your credit score a little more.
Once you know your credit score, you can start to research your options when it comes to loans. Each lender will have their own eligibility requirements, but aside from your credit score, some may also dictate the location of your home as well as the type of property you can purchase.
By getting pre-approved for a loan in advance of your home-buying search, you can get ahead of the game. Not only will you be able to demonstrate to sellers that you mean business, but you’ll also have a clearer understanding of your budget, helping you to narrow down your search.
We know all things finance can get a little tricky, but generally loans can be broken down into two simple categories: fixed or variable.
For fixed-rate loans, you sign on to pay the same interest for the entire duration of your mortgage. Although rates are gradually increasing, the NAR has noted that they still remain at historic lows as of 2021, so signing on for a fixed plan may make the most sense — especially for buyers who appreciate a bit of predictability.
A variable loan is basically the exact opposite of that. With an adjustable-rate mortgage, your interest is variable, meaning that your lender can change it as the market fluctuates. So, if you’re going for the safer bet, we’d recommend a fixed-rate mortgage.
Once you decide between fixed or variable, you have several loan options to consider depending on your current financial situation:
If you have a credit score at or above 620, private loans from the financial institution of your choice will likely be the best option for you. And, by putting a larger down payment forward, you’ll be able to get a better interest rate.
Be sure to give yourself the time to shop around. Look for a lender who has a competitive mortgage rate and the right payment plan for your needs.
A conventional loan is by far the most popular form of lending as it doesn’t have as strict of regulations on income, home type and location as other options out there. Traditionally, you’ll be paying either a set or variable interest rate on top of a monthly principal for about 30 years.
Interest-only loans are a unique type of mortgage in which borrowers only pay the interest rate for a set period of time. Often, this term expires in about five years, at which point you’ll need to pay for the interest and the principal, which about doubles your monthly mortgage payment.
If you are moving to an entirely new location and are looking to settle into a new job, an interest-only payment plan can help you build your finances back up after the initial move. Just be sure to keep an eye on the calendar so that you’re ready to pay the full amount when your interest-only term expires.
For those who qualify, the government offers several different types of loans to help make buying a house a little easier. Before working with a private lender, be sure to check whether you’re eligible for one of these federally insured mortgages, as they often come with much more accessible down payment requirements:
If you plan to use a government-backed loan, it’s especially wise to start the loan approval process in advance. This way, you know if you’ll need to be searching for a home with any specific geographic limitations.
With all of the options available for home buyers when it comes to getting a loan, you’ll be sure to find the right payment plan for your unique financial needs. And, once you do, Bungalo is happy to work with your preferred lender so that you can move ahead with confidence.
Congratulations! You’ve been approved for your loan, you’ve found your dream home and your offer has finally been accepted.
So … now what?
While the exact timeline may vary, first-time buyers are often surprised to learn that closing can take anywhere from one to two months. Although being pre-approved helps to speed things along, there are still a few important steps (and costs) to manage before you can actually move in:
Home inspections are conducted by a certified expert who looks for any potential hazards around the property, such as bad wiring or major structural issues.
The average price for an inspection of a single-family house comes in around $300 to $450 dollars. However, depending on the size of your home and any unexpected complications (translation: mold or termites), that rate can quickly go up.
Although there’s no law that requires a buyer or seller to conduct an inspection, many lenders will include it as a contingency in the loan. Plus, if you catch any major issues before move-in day, you’ll often be able to work with the sellers to ensure the cost is fairly managed. Without one, you can expect to foot the full bill later on.
If you’re looking to skip this cost, we can help. At Bungalo, all of our homes receive top-to-bottom inspections so that you don’t have to worry about any unexpected surprises. Move in with the confidence that your home has been expertly certified and use $500 toward something more fun — maybe that dining set you’ve been eyeing or a new game room setup?
Closing costs represent all of the additional fees and charges you’ll need to pay to finalize the sale of your new home.
In addition to paying for your home inspection, closing costs also include:
On top of all of this, your total closing costs will also include property taxes and title fees.
Still with us? We appreciate it. That grocery list of expenses can definitely get overwhelming pretty quickly.
To make a long story short, when it comes to how much cash you’ll really need to close on your home, the NAR says a homebuyer should expect to pay on average between 2% and 5% of the total loan amount.
There are definitely more than a few hurdles to jump before you can close on your new house and finally move in. While the traditional path to purchase can be a tricky one, it doesn’t have to be like that anymore.
That’s why we created Bungalo. Because we think finding and buying a home should be as simple as possible.
With Bungalo, you can tour a house from the comfort of your couch, no appointment required. Once you do find the home of your dreams (we know it’s out there), all you have to do is click to create your digital offer. And that endless list of closing fees? Navigate it like a real estate pro with our step-by-step checklist.
As your partner in all things real estate, Bungalo is here to take the confusion out of buying a home so that you can move in as soon as possible.
Check out our blog and learn more about homeownership.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.
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