Congratulations on your decision to purchase a new home! In a world of so many options, it can seem really intimidating, but it doesn’t need to be. The market is hot, and homes aren’t sitting on the market long. Having your ducks in a row before you start the shopping process can make all of the difference. Let’s take some of the mystery out of the process and discuss various steps in the home buying process.

Understanding the Pre-Approval ProcessDebt

Four letter words are bad words, right? This four-letter word isn’t so scary if it is manage effectively. Lenders are going to want a full view of your financial picture to get you qualified.

The first thing you are going to want to do is make a list of the bills you pay each month such as auto payments, student loans, credit cards, and personal loans. (Don’t worry about your cell phone, utilities, or insurance. They are only concerned with the debts that report to directly to credit.) Next to each item write down the minimum monthly payment that is required. This is going to give you an honest view of the output that you have already.

You then will want to figure out what your gross income is for the month. (Tip: Take the gross number from your W2 and divide it by 12.) You now should have two numbers, your total debts and monthly gross income. Divide your debt number by your income number. This will give you a percentage that will be used as a starting point later.

Debt-to-income, known as DTI, is a calculation used by lenders to factor your ability to repay the loan by evaluating your debts, new mortgage payment, taxes, and insurance against your income. Depending on what product and program you choose with your loan officer, the specifications and guidelines that are applied will differ slightly. FHA and Conventional loans are the most used when purchasing a home, so we will use their ratios in our examples. (Keep in mind, we are sharing federal guidelines. Lenders and banks have the option to make their requirements stricter if they choose.)

• FHA Loan: Max DTI 55%
• Conventional Loan: Max DTI 45%
• Down Payment Requirements

Throw away the idea that you HAVE to have 20% to put down, or you can’t buy a house. It’s just not necessary. You can absolutely buy a house with a lower down payment. However, you will need to have some money to add to the transaction to help cover appraisals, inspections, and closing costs. Typically, lenders will want to see you have some skin in the game.

The ultimate question is, how much? This number is going to vary per transaction and loan program chosen. Each loan type has a down payment minimum and a threshold for how much money a seller can contribute to the buyer’s closing costs. FHA loans ask for a minimum of 3.5% down, and they allow the seller to contribute up to 6%. Conventional loans require a minimum of 5%, but they will only let the seller contribute up to 3%. Clear as mud, right?

Use the following example to understand:

FHA Loan: $100K Purchase/ Closing Costs $6K

• Down Payment – $3,500
• Seller’s Contribution – $6,000
• Cash to Close – $3,500

Conventional Loan: $100K Purchase/ Closing Costs $6K

• Down Payment – $5,000
• Seller’s Contribution – $3,000
• Cash to Close – $8,000

These are the two largest factors that you will want to consider before talking to a lender. Once you have a good idea of your current situation, you will feel more confident starting the preapproval process. You loan officer will ask you a few questions to get you started and request a few verification documents from you. They should then be able to discuss what programs you qualify for, your budget, and expectations.

Finding the Perfect Home

With the inventory on the market turning over so quickly, many buyers are choosing to work with custom home builders instead of feeling rushed through the offer process. New home construction allows the buyers to tour model homes, pick out their finishes, and move through a slower pace as the home is being built. The cost to build a house isn’t going to be much different than purchasing a home out of inventory as long as you are mindful of the upgrades that you are choosing. When you opt to build your own house, you tend to get more of the things you want vs. things you can live with. This is often why favor using custom home builders when they are in the market.

Enchanted Construction Service, Greenville custom home builders, offers homes in various communities in all sorts of price points to fit your budget. If you have started an internet search with “home builders near me”, “new construction homes near me”, “new homes near me”, or “home builders in Greenville SC”, then they check all of those boxes.

Buying a new home is like being the coach of the perfect team. You choose your real estate agent and loan officer, and you want to work with house builders that are going to take care of you. Check out Enchanted Homes for your next home purchase online or give them a call at (864)-895-0601, because you deserve the best.