Some people never come up with the courage and the resources to buy a new home. It’s the American dream, but it’s definitely not an easy process. If you’re researching what it takes, congratulations! We want to help, so we’ve put together this comprehensive guide to answer common questions and provide links to resources that will help you along the way.
When you buy a new home, think of the process like stages of a journey. You’re not going to get there all at once. There may be roadblocks, setbacks and detours. You may have to ask others for help along the way. However, as long as you keep moving toward your goal, the destination will be worth all the effort.
Deciding When It’s Time
It’s not always the right time to buy a new home. If your job requires you to move frequently, homeownership just doesn’t make sense. Or, if you’re terrible at managing your money, you might need to focus on improving your budgeting skills before you make that your goal.
Don’t buy a home just because friends your age are doing it. If you just finished college and got your first professional job, wait a few years to pay down student loans and settle into your new adult lifestyle. If you’ve heard it’s a bad idea to keep throwing money away on rent, that’s not true for every individual.
Buy a home when you’re ready to settle down and start building long-term wealth. Most importantly, buy a home because that’s what you want, what’s right for your future and your family. Think through the following:
- How do you feel about the initial investment? You may have been skimping and saving for months, even years to get enough for your down payment and closing costs. Buying a home through many traditional lenders takes a big chunk of cash.
- How much debt do you already have? Sometimes families have two car payments, student loans, credit card debt and other obligations, and their debt to income ratio is just too high. If half your paycheck goes to paying off current loans, you may not have enough left over to buy a home.
- Can you pay more than just the mortgage payment? When you buy, you have property taxes and homeowner’s insurance. You might also have fees like homeowner’s association dues. If you rent, your landlord pays for maintenance and possibly utilities. You’ll be on your own when you buy a new home.
- Are you ready to stay put? You should be reasonably sure you won’t want or need to move in the next five years.
Calculating How Much House You Can Afford
Sometimes people calculate how much they can afford to pay if everything goes right and they severely restrict spending in other areas. That’s not the right approach.
It also stinks to start visiting homes before you know, fall in love with one at an open house, then find the payment doesn’t fit your budget. It’s better to calculate ahead of time exactly how much house you can afford.
Most lenders use a ratio to decide how much they can approve. It varies by lender, but not by much.
Generally, your monthly house note shouldn’t be more than 28 percent of your monthly income before taxes. Your total payment with insurance and taxes added in shouldn’t take up more than 32 percent of that same amount. When you add in your other debt, overall you shouldn’t be paying more than 40 percent of your income to loans.
We know that’s a lot of variables. We want to help, so we created a tool to make it a little easier. Use our Mortgage Calculator to find out how much home you can afford. If you like, you can also schedule a free loan pre-qualification when you do.
Evaluating Your Credit
When you buy a new home, getting approved for a mortgage is about more than just your monthly paycheck amount. Your credit score can make or break the process. We put together an entire article on Good Credit, Bad Credit and Buying Your New Home that goes into more detail. Basically, here are the steps to take.
- Obtain a copy of your credit report. Get an official copy from Equifax, Experian and TransUnion once a year from annualcreditreport.com. Once you have it, don’t just look at your credit score. Read the entire document and look for errors or accounts you didn’t originate. If you see evidence of identity theft, you can initiate a credit freeze for free until you have time to resolve the issue.
- Correct errors. If you see something that doesn’t seem right, contact both the credit reporting agency and the entity making the claim. According to usa.gov, they’re required to investigate. Whether you contact them electronically or through regular mail, keep copies.
- Analyze your credit score. The score you need to buy a new home varies depending on the type of loan you’re applying for. Generally, the lower your credit score, the higher you can expect to pay in interest. The higher your score, the more likely lenders are to approve you for lower rates. Of course, there are exceptions. Some borrowers qualify for special programs and rates.
What is a FICO Score?
You may have heard your credit score referred to as a FICO score. It’s a three-digit number between 300 and 850 first introduced by the Fair Isaac Corporation (FICO) in 1981. FICO is a brand name with multiple versions and editions. Your score depends on your payment history, the amounts you owe on each credit account, how long you’ve had your oldest and newest accounts, the types of accounts you have and new credit inquiries.
Credit Score Needed to Buy a New Home
Again, different lenders have different requirements. Mortgage lenders will look at your FICO score to see if you can qualify for a loan, but just because one turns you down doesn’t mean they all will. Here’s a breakdown of typical minimums for common types of mortgage:
- FHA Loans – Some people can qualify with a credit score as low as 500. Typically, borrowers are approved with a score of 580 or higher.
- VA Loan – Veterans qualify for a special type of loan given by regular lenders but backed by the government. VA loans don’t have a minimum credit score requirement from the U.S. Instead lenders set that amount. Usually, it’s 620 or higher, but sometimes it’s as low as 580. One of the best things about a VA loan is they don’t require a down payment and you don’t have to pay private mortgage insurance (PMI).
- USDA Loan – The U.S. Department of Agriculture mortgage program provides zero down payment mortgage options for eligible rural and suburban buyers. It’s similar to an FHA or VA loan. Most of the time it requires a credit score of 640 or higher.
- FHA Loan – A Federal Housing Administration loan is available for borrowers with a credit score as low as 500 with a 10 percent down payment. If your credit score is 580 or better, you might be able to qualify for as little as 3.5 percent down.
- Conventional Loans – This is the type of loan you typically get from banks and other financial institutions. You’ll need a credit score of 620 or more, and you’ll typically need a larger down payment, but sometimes interest rates are lower. That saves you over the lifetime of your loan.
If at this point your head is spinning, remember this is a journey. When you feel tired, stop for a break. Then look toward your goal and remember all the reasons you want to buy a new home in the first place.
Don’t Let Credit Hold You Back
If your credit is less than perfect or if you’re overwhelmed by the number of choices, this is one of the areas it’s easy to find assistance. WestWind Homes started our Home Buyer’s Club for people who want a new home but are worried about the details. We’ve been helping people like you achieve their dreams since 1993.
Enrollment starts with a free confidential credit consultation. We’ll help you get your credit ready for the home buying experience so you can qualify for a home purchase. In many cases, Home Buyers Club members are ready for a new home in 90 days or less. We’re so confident we can help, we’ll give you a program graduation present. When you complete the process, we’ll give you as much as $1,000 toward your down payment on a new WestWind Home.
What You’ll Need to Apply For a Loan
You’ll need some paperwork to officially apply for a home loan. A lot of the preliminary work can be done online, but at some point during the process, lenders might ask you to supply these documents.
- Tax returns – Lenders want to see at least two year’s worth. They might ask you to sign a form so they can request copies directly from the IRS.
- Pay stubs or W-2s – Your tax returns provide the big picture. Pay stubs are a current snapshot.
- Bank statements and asset verification – Lenders want to know if you typically keep some cash in reserve and if you do, indeed have on hand what you need for a down payment.
- Gift letters – If a family member is providing the money you’ll use as part of your home purchase, the lender will request a gift letter to make sure that’s not a loan. If it were, it would affect your debt to income ratio.
- Photo I.D. – Lenders want to know you are who you claim to be and protect you from identity theft.
- Rental history – If you pay rent on time, that’s another indication you can make a mortgage payment.
Depending on what type of loan you’re applying for, the lender may need additional documentation. For example, if you’re applying for a VA loan you’ll need to provide documentation of military service.
Buying a New Home – The Search Begins
Once you have an idea of how much house you qualify for, the fun can really begin. If you’ve made it this far, congratulations! You’re well on your way to seeing your dreams of homeownership come true. After that first rush of excitement, you’ll be ready to tackle the next big task of finding the home that’s right for you. Start with our homebuyer’s wish list to get your thought process flowing. If you’re ready to start your search, click here Find Your Home.
Creating Your New Home Wish List
Grab a sheet of paper and a pen or pull up your favorite note-taking app. If you’re going to buy a new home with a spouse or other family member, carve out some time you can both sit down and talk through what’s important.
Go ahead and write down your price range, with both the minimum and maximum numbers. Then, set a range for the square footage you’d find acceptable. If you know what communities you’d like to focus on, write those down as well.
Then, make one column for “needs” and another for “wants.” Under “needs,” list features you absolutely must-have. Things you’d like, place under “wants.” For example, most people have an absolute minimum requirement for bedrooms and bathrooms, so they would place that under “needs.” Maybe you would really like an outdoor spa, but you wouldn’t turn down the right house if it didn’t have one. That would go under the “wants” column. If something isn’t important at all, just don’t write it down. Here are items to consider.
- Desired school district(s)
- Proximity to school
- Older home or newer home?
- Preferred home style (traditional, contemporary, southwestern, colonial etc.)
- Would you be willing to do a renovation or do you want your home to exactly fit your requirements?
- Proximity to public transportation
- Garage size
- Yard size
- Fencing composition and area
- External buildings like a storage shed or greenhouse
- Patio or deck
- Additional parking
- Interior flooring – hardwood, carpet, tile, laminate etc.
- Kitchen features
- Separate dining area
- Separate den or second living area
- Two stories or no steps
- Community amenities like a pool, walking paths, golf course etc.
Take your time making your list. When you look at these items, you’ll think of more. You probably won’t come up with everything you want the first time through, so give yourself time to contemplate.
Finding the Right New Home
Creating a wish list helps you focus on the homes that meet your requirements and weed out ones that don’t. Until now, everything in this article is true of buying all homes. From here on out we’re going to narrow our focus a bit. As the title suggests, we created this information for buyers interested in buying a new home. Not just new to you, but actual new construction in the Laredo or Rio Grande Valley area.
Find out which builders offer new homes in the communities on your wish list. If you’re looking in certain school districts or within so many miles of your job, that helps you narrow your focus. From there, you can either decide to build a new home or purchase a brand new home that’s move-in ready. WestWind Homes has both options available.
If You Want to Build
When you build a new home, every option is available. You can choose everything from the floorplan to the actual flooring. You’ll have to go through more steps and wait for your home to be complete, but you get to be intimately involved in the whole process.
WestWind Homes has floorplans available online so you can get an idea what’s available by community. Then, tour model homes to get a feel for the size and features you like best. Take notes and photos as you tour. If you walk into a home or a room and love it, stop to notice what exactly you love. Is it the windows, the wall texture, the color scheme, the flooring or other features? The more specific you get, the more likely you are to be able to recreate a similar feeling when you buy a new home.
Look at little details like cabinet hardware and cabinet configuration. It makes sense to sweat the details before you build.
Before you start construction, we can help you choose from our huge range of plans, then evaluate which options and upgrades are right for you.
Buy a New Home That’s Move-In Ready
WestWind Homes has move-in ready homes in Laredo and the Rio Grande Valley area. You get a brand new home without the wait. We have a variety to choose from, so there’s a good chance there’s one that fits your needs, lifestyle and budget.
Start online by choosing the communities you’re interested in. We’ve posted available homes with their floor plan, square footage, neighborhood amenities and plenty of photos. There’s also the option to do a property search with your desired bedrooms, bathrooms and property type.
Schedule an appointment to view the homes you’re interested in. Wear comfortable shoes and allow yourself plenty of time to look at each one. Even if you feel like you’ve found your dream home at your first stop, look at a few more so you have homes to compare it to.
Use your wish list, but listen to your emotions and your gut. If you feel like a house isn’t right, don’t try to talk yourself into it. If you aren’t sure, don’t rush into a decision. Make as many trips to revisit homes you’re considering as necessary.
WestWind Homes helps Texans achieve homeownership, and we’re here to help you. Contact us today to request tours, sign up for our newsletter or receive home brochures. We’re available online or when you call 1-800-587-1302.