Buying a house can be a daunting process at any time, with it being the largest purchase most people make. It may be especially so right now because of rising in housing costs and interest rates plus the limited market of houses available.
This story was developed for an email course, part of the Wichita Journalism Collaborative’s Priced Out series on housing, will guide first-time buyers through the process. Starting with what to do before you even start shopping for a house.
You can sign up for the course at https://wichitajournalism.org/newsletters/.
Lesson 1: So you’re thinking about buying a house?
For this section, the advice comes from Kati Harper, who has been a real estate agent for 16 years, and Chris Wolgamott, a financial counselor with Meritrust Credit Union.
What to keep in mind before starting
Wolgamott said his advice for people getting ready to start house shopping hasn’t changed in recent years despite the changes. He said to be prepared to add a cushion in your budget with the higher interest rates on mortgages.
Wolgamott said realistically people should plan to spend a year in advance getting their finances in order before they consider buying a house.
Harper said the first step is to get prequalified for a loan. Prequalification takes less time than getting fully approved for a loan, but it will let you know your price range.
Knowing that range will help you shop. According to a report by the financial advisor Nerd Wallet, prospective homeowners under estimate how much they must spend. Twenty-six percent of buyers were unable to complete a purchase because the price turned out to be too high.
Harper recommends working with a local bank if possible. She said it’s not necessary, but for first-time buyers especially, the paperwork involved in closing is easier when someone is available to help you in person. Being able to walk into an office to ask questions can be an advantage.
Wolgamott also recommends waiting until you’re in a place where you’ve built up a work history and your job has been stable for a while. This can help both with ensuring you’re financially ready to own a home. You’ll also know that you’re in a location that you’ll want to stay. That makes the effort of buying and maintaining a house worth it.
What do banks look for from you?
Wolgamott said the credit score is one aspect that people are most often unprepared for. He said it’s the main deterrent he sees in people looking to get approved for a loan. A good credit score will open up more opportunities and helps lower the interest rates of your mortgage.
Wolgamott said in his experience, lenders will want to see at least a mid-600s credit score for the loan to be approved.
According to Wolgamott, credit tracking websites like Credit Karma don’t always give an accurate number, but they can still be useful to monitor your credit trends.
Down payment money needs to be ready in a savings account. Wolgamott said banks look for “seasoned money.” This is money that has been in your savings account for at least 60 days. He said this ensures a potential client is reliable, and didn’t borrow money spontaneously from relatives or friends.
Monitor your debt ratio and other debt obligations. Wolgamott said banks look at how you’ve paid down previous debts to make sure you’re ready to take on the financial burdens that come with mortgages and house maintenance.
Work history helps give banks a good understanding of your current stability and your ability to manage mortgage payments and house maintenance.
Once you’re at this step Wolgamott recommends reaching out to a financial advisor for more specific advice that is unique to your situation.
Other things to keep in mind:
- Consider the full costs of renting vs buying. Buying includes mortgage payments along with any surprise costs like sudden repairs.
- Are you prepared to keep up on mortgage payments?
- Are you prepared to maintain a house including surprise repairs?
- Are you ready to stay in that location? Harper pointed out that selling before living there for two years will require you to pay capital gains taxes.
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This article was produced by KMUW as part of the Wichita Journalism Collaborative (WJC), a partnership of 11 media and community partners, including KMUW.
The WJC is embarking on 18 months of dedicated coverage to shed light on the pressing issue of affordable housing in Wichita.
