I’ve purchased property twice before. But this is the first one I’m actually negotiating on as a realtor. Yes, in addition to my day job, I’m also trying to work as a realtor part time both for the experience and the money. I want access to the multiple listing service so I can see what’s on the market and invest wisely. I also want to help other people buy and sell and make money that can pay off my student loans. My past purchases were condos and now I’m looking for a townhouse. I haven’t been doing this for long but some things make themselves abundantly clear from the start. Here’s what I’ve learned so far:
- Don’t get pressured into buying property: Its not always the right thing to do. Don’t just do it because it looks like a good idea. Do your research. All real estate is local and depending on where you live, buying a house as opposed to renting might be the wrong thing to do. The reason I decided to buy property instead of renting an apartment is because the rent in my area for the type of home I wanted was literally double the amount I would pay as a mortgage. If I had rented a 2 bed 2 bath with the same amenities that my current home has, I would be paying $2400 in rent as opposed to the $1245 I pay now in mortgage and condo fees. But this might not be the same for you. Do what makes sense. Literally everyone in the home buying process is making money off of your purchase and might not always have your best interest at heart so make sure you do your research.
- Be honest with yourself: If you’ve worked yourself into a position where your credit can get you a high amount in loans and you’re tempted to buy that snazzy renovated house, just ask yourself if you need it. You probably don’t. You probably also don’t need the high monthly payments that come with buying a property just because you can afford it. That’s how you chip away at the quality of your life. Be honest and find something that will just fit your needs for now. If you’re young and have no children, there’s no need to go and buy a 4 bedroom 3.5 bath granite/hardwood everything house in the suburbs; unless you’re planning to rent it out.
- Adjust your DTI: Lenders look at a lot of things to see if you’re credit worthy and one of the things that tell them whether or not you will be able to pay your mortgage on time and in full is your Debt to Income ratio. This is calculated by dividing your monthly debt by your gross monthly pay. What they consider debt for this calculation is things like credit card debt, student loans, mortgage/rent, car note. Your utility bills don’t factor in. The maximum it can be for them to consider you a trustworthy borrower is 43%. Anything above that is not considered. The lower it is under that threshold the more trustworthy you are. How do you do this? Simple, you pay down your debt and increase your savings.
- Preparation is Key: Going through the process of getting a mortgage is not the most fun experience. Its made that much more difficult if you are not the type to have your essential financial documents handy. To apply for a mortgage, the documents you would need are three years worth of tax returns and W2s, your last two pay stubs, your last three bank statements, and your driver’s license. These are all things you could get in advance and have ready to go. The more prepared you are, the less time/energy the process will cost you.
- Don’t go crazy with your money: Lenders are put off by random unpredictable expenses and random unpredictable sources of income. When they see an unexpected expense on your bank statement that’s not part of your regular spending, they worry that you’re undisciplined and likely to have cash flow problems. When they see a random surge of cash in your bank account they worry that you’re either not telling them about all of your sources of income or that you’re borrowing from someone and thus have altered your DTI. Either one is not a good look. Your finances have to be super predictable and consistent for them to trust your ability to pay the mortgage.
- Documentation is everything: Sometimes, stuff happens. Your car breaks down and costs $1200 to fix or you have to go to a hospital and end up spending $900 on medical expenses etc. In order to avoid the effect unavoidable expenses such as this might have on your chances of getting a mortgage, keep records of the necessary expenses you had to cover. Receipts, emails and statements for everything you know is out of the ordinary.