Questions to Ask When Buying a Home as a Young Adult

Most young adults dream about owning their own house. They're hoping all of their hard work will pay off, and they can one day purchase their first home. While it may not be your dream house, it's the perfect first place to purchase and call your own, which you can re-decorate and create the home that's right for you. Buying a house comes with a lot of questions, mainly about mortgages and how to get one, especially when you're a young adult going through this for the first time.

According to Rocket Mortgage, the average mortgage buyer is 47. While it may seem difficult to obtain a mortgage and purchase a house in your mid-to-late 20s or 30s, it's possible! We have you covered! As your trusted source for your home-buying needs, we've created a guide to help you through the home-buying process, so you know exactly what to expect every step of the way. Feel free to visit our site for additional information, or reach out to us for more advice or with any questions. Now, let's get started and help you secure that new house you've been waiting for!

What Are the First Steps?

The first step is getting pre-approved for a mortgage. Many banks offer a quick pre-approval process, so you can get started pretty quickly. Most lenders also have a mortgage calculator that allows you to estimate your monthly mortgage based on the loan amount and your down payment.

How Much Can I Get Pre-Approved For?

Your pre-approval amount varies based on the following:

Debt-to-income ratio

Loan-to-value ratio

Size of down payment

Employment history

Credit history

You can simplify the process and get things started online!

How Do I Work With My Lender?

After your pre-approval, your information then goes to a lender that works with you throughout the process. You'll receive a pre-approval letter that serves as your conditional commitment to the loan for a specific amount that can be used to purchase your home.

The loan letter consists of the loan amount, program, terms, and interest rate if you can meet certain conditions.

When Should I Start Getting Approved for a Mortgage?

You can apply for a mortgage when you're ready to start looking at homes. Most first-time buyers prefer to get pre-approved, but you can skip this process if you want to buy in the next couple of months.

How Long Does the Pre-Approval Take?

With all of your paperwork ready to go, most lenders can get pre-approvals processed in a day or two, and your pre-approval is good for 30 to 90 days, but it varies from lender to lender.

Are There Minimum Requirements?

While there are requirements to buying a home, your age won't hurt your chances. When it's time to apply, consider the following to help increase your approval odds:

Down payment: According to our team, this can range from 0% for USDA or VA loans to 3% for FHA or conventional loans or 20% for conventional loans without private mortgage insurance.

Credit score: Your credit history tells lenders what they need to know about your personal finances. While you don't need perfect credit, you do need between 580 for FHA loans, with 3.5% down, to 580 - 620 for VA loans, 620 for conventional loans, and 640 for USDA loans.

Debt-to-income ratio: Your current debt affects your eligibility and there's unfortunately no way around that. Conventional loans allow up to 43% DTI, FHA loans can go up to 50%, and DTI for VA and USDA loans go up to 41%.

Income: You'll need to supply your W-2 forms or pay stubs to prove income. Most lenders require at least a two-year employment history to qualify.

Closing costs: These are the costs for legal and administrative services for finalizing the purchase. You're often expected to pay between 2% and 5% of the loan amount. Most buyers will ask the seller to help pay the costs, but they're not required to help.

What Are Some Tips for Future Home Buyers?

Not ready to buy your place just yet? That's okay! If you know you want to buy something soon or want to get started, here are things you can do to improve your finances:

Work on your credit score: Start paying down your debt, starting with the one with the highest interest rate, and work your way through your debt. Settle any accounts past due or in collection. It's important to make sure everything is in good standing.

Remove any unneeded expenses: Cutting out incessant expenses will add up over time. Cutting back on eating out, excessive shopping, and buying coffee allow you to save up for your down payment.

Avoid expensive or large car payments: It may not seem like much to have a $500 car payment, but it can cut your buying power quite significantly. It also means less cash flow each month, especially when you add a mortgage payment.

Prepare for unexpected costs: Preparing for the unexpected isn't always easy, but having money aside for emergencies will help when buying a home. These expenses include moving, new furniture, any HOA fees due, property taxes, and more.

How Do I Search for a New Home?

You may have started searching, but it's good to set up alerts for the cities you want to move to on sites like Realtor and Zillow. This can seem daunting. That's why it's best to work with a realtor who can handle the search and bring you to the top listings within your criteria. Take your time viewing the homes, and don't hesitate to visit your top choices more than once. Take pictures and ask questions about the place.

What Should I Do After I've Found the Right Home?

After you've made an offer, you'll want to fill out the mortgage application and send all the financial documents the lender requires. This allows you to lock in your rate. This offer lasts for 30 days, so you won't have to worry about the rate going up while the loan is getting processed and underwritten.

Before closing and making things official, get the house inspected by a professional home inspector. They'll inspect and evaluate the house for any potential repairs, safety issues, or deficiencies. If a major issue arises, you can have the seller address it before buying the home. Another option is having them pay part of the closing costs to make up for those repairs.

Lastly, you'll want to attend the closing at your title company. Sometimes it can be done online through a mobile notary. The closing is where you sign the closing papers and provide your down payment and any closing costs with a cashier's check. You'll know how much to pay since your loan officer will send a closing disclosure with all of that information included.

After that, it's time to get your keys and enjoy your new home! Buying a house may seem stressful, but it's also an exciting time, and we want to help make the process stress-free and efficient.

Ready to get pre-approved, but want to know more about mortgages and the best way of obtaining one? We're proud to be your trusted resource for obtaining a mortgage for your next home purchase. We offer helpful tips for improving your credit score and other ways to stand out and improve your chances of getting a pre-approval. Get in touch with us at Capital Bank to get started!