By Lawrence M. Centanni
Though interest rates are higher than most potential homebuyers would like, the reality is people still need a place to live. With the price of rent continuing to increase, purchasing a property now with the intent to refinance when interest rates drop may still save folks money in the long run. For those looking to purchase a residential property in New Jersey, here are some steps for getting the best deal possible on the property you’d like to buy.
Before You Buy
The first place to start is by taking a look at your credit, establishing a livable budget, and researching the market in which you’re interested.
Before you go looking at homes, look at your personal credit first. You are legally entitled to a free credit report from each of the big three credit reporting agencies annually. The big three credit reporting agencies in the U.S. include Equifax, Experian, and TransUnion. Be sure to request a copy of your credit report from each of these credit agencies. This will tell you your FICO Score. Also, be sure to get one for your spouse or any other co-buyers whose name will appear on the mortgage application.
If you are applying for a loan on your own, lenders will get your credit score from the three above-mentioned credit bureaus. They then take the middle, or median, score to qualify you. If there are two or more borrowers on a loan, the lowest median score among all of the mortgage applicants will be used as the qualifying score. For example, if you have a median score of 720 and your co-borrower has a score of 580, the average credit score would be 65
Research Loan Types
You will also want to take time to investigate different loan options. If you are a veteran, you may qualify for a government-backed Veterans Administration (VA) loan. First-time homebuyers may qualify for a loan that requires little down (3.5 percent) through the Federal Housing Administration (FHA) but also requires mortgage insurance.
Keep in mind the minimum score to qualify for a conventional loan is 620, according to Rocket Mortgage. A loan through the FHA typically requires a minimum credit score of 580, VA loans require a minimum credit score of 580, and government-backed United States Department of Agriculture (USDA) loans require a 640 minimum credit score.
Establish a Livable Budget
After checking your credit score, it’s time to look at getting prequalified for a mortgage, reducing debt, and establishing a livable housing budget. Chase estimates that 28 percent or less of your monthly gross income should be spent on your mortgage payment including the principal, interest, taxes, and insurance.
For example, if you make $6,000 every month, multiply $6,000 by 0.28 to get $1,680. Using this formula, your monthly mortgage payment should not exceed $1,680. Lenders will typically look at three factors when estimating what you can afford for a mortgage: your gross income, your debt-to-income ratio (DTI), and your credit score. This will help you avoid being “house poor” and leave you a livable budget.
Reduce Your Debt
Before going to get prequalified for a mortgage, try to reduce your debt as much as possible. Consider taking out a lower-interest credit card or consolidation loan where you can consolidate your debt and pay it off more quickly.
Each month, pay more than the minimum payment due on credit cards and other lines of credit. This will help you in reducing your credit more quickly. Reducing your debt will help you to afford more house with fewer issues when it comes time to get a loan. Additionally, avoid applying for new lines of credit in advance (two years) of getting pre-qualified as this can look bad on your credit report.
To get prequalified, check out several lenders. By shopping around and getting at least three estimates from different lenders, you’ll get the best interest rate and loan so you can live within your means.
If you bank with a credit union, start there. Set up a time to speak with your local credit union about getting prequalified there since they typically offer lower interest rates. You may be better off starting a savings or banking account with a credit union for a year before you buy just to get the best interest rate, especially during this time of inflation.
Should a credit union not be an option or you don’t have the time to establish an account with a credit union, start with the bank where you currently have your accounts. Again, set up a time to meet with a banker and ask them to start running the numbers to prequalify you for a mortgage. If you have multiple people applying for the mortgage, they will also need to be present.
The bottom line is that getting pre-qualified makes it easier to bid quickly on a home in a hot market. Additionally, it can save time later on in the buying process.
Find a New Jersey Real Estate Agent
By working with a real estate agent, you’ll have professional guidance through the home-buying process. This is especially true if you find an experienced agent who can answer all of your questions. An agent will also have a listing of available homes to assist you in efficiently finding a home that meets your needs.
Ask trusted friends for referrals to experienced agents in the area you are looking to buy in and do your homework. Research the agent, read online reviews, and check with your local Better Business Bureau to ensure they don’t have a bunch of complaints filed against them.
Also, check with the State of New Jersey to see if any real estate agent you are considering working with is fully licensed. You can see if they have their brokerage license or work with one through the Online Licensing Services page with the New Jersey Real Estate Commission.
Begin House Hunting
After you have accomplished all of the above steps, now it’s time for the fun part: house hunting! Your real estate agent can assist you in locating available options that meet your criteria. You just have to think about what your criteria are before you start your search.
Consider how much space you need. Think about how long you intend to stay. How are the schools in the area? How close are shopping and dining options? Do you wish to be close to your place of employment? Are you looking for a fully-functional home or are you ok with a fixer-upper? Do you need a fenced yard for pets or children? How much garage and storage space do you need? All of these things should be considered and shared with your agent to save time and effort for everyone.
Making an Offer and Negotiating
When buying a residential property in New Jersey, this is an incredibly important step. This is because the offer you make and how well you negotiate will ultimately determine what you pay and how high your monthly mortgage will be.
Before you make an offer, ask your real estate agent to determine whether the asking price is reasonable and in line with the local market prices. They will be able to pull comparable properties to evaluate prices to help answer this question.
Hire a Real Estate Attorney
You will also want to find an experienced real estate attorney. A real estate attorney such as the Law Office of Lawrence M. Centanni can assist your real estate agent in reviewing any paperwork, ensure that all inspections are conducted properly, and even help during negotiations so you get the best deal. Your real estate attorney can also accompany you and your real estate agent to the closing to answer any lingering questions and review all final closing documents.
If you have questions about preparing to purchase a residential property in New Jersey, contact the Law Office of Lawrence M. Centanni at (908) 351-0028 or visit centannilaw.com.