Before you enter the Marin housing market, it is a good idea to take a realistic look at your financial position and find an experienced real estate agent to guide you through what is a surprisingly complex process. Purchasing a home is one of the major decisions you will make in your life. Better to be safe by following these suggestions:
Make a List of What You Want
Develop a list of what you want in a home. If you have a partner, make two lists and then merge the lists. You may not be able to agree on every requirement, but this is good to know. The market may provide the solutions and compromises.
Review your finances
Unless you’re a cash buyer, you’re going to need a mortgage. Lenders will be looking closely at your financial situation, so it’s best to be prepared. Even if you do intend to offer a cash purchase to compete for a choice property, you may still intend to take out a mortgage after the purchase to free up your cash for other investments. If this is the case, it’s advisable to set this up in advance with a reliable mortgage broker.
Income – Lenders will want to see that your sources of income are regular and consistent. Credit Score and Report – Check these, as lenders will rely on them to help determine which type of mortgage you’ll qualify for. You can request your free credit report from either Experian, Equifax or TransUnion.Look particularly for mistakes in your credit report and contact the corresponding credit bureau to have them corrected. A mortgage broker can help with this.
Existing Debts – Mortgage lenders will consider your debt-to-income ratio (DTI). You can calculate your DTI by dividing your current monthly debt payments by your regular monthly income. A DTI of 43-45% is typically the highest ratio a borrower can have and still get qualified for a mortgage, but lenders generally seek ratios of no more than 36%. Savings and Cash on Hand – Evaluate your savings to determine if you can cover your out-of-pocket expenses – primarily the down payment and closing costs. The amount of the down payment will impact the size of your mortgage loan, interest rate, and monthly payments. Your real estate agent can give you an estimate of closing costs. See What does it cost to buy a home in Marin?Set a Budget
Before beginning the home-buying process, you need to determine how much you can afford to pay – not just upfront, but every month for the life of the loan. To do that:
- Figure out your monthly income after taxes.
- Next, subtract the costs of your regular monthly expenses, including credit card payments, student loans, car payments, and all other recurring expenses (such as groceries, gas, etc.).
- See What are the real costs of home ownership in Marin?
- Determine your monthly discretionary spending – your wants vs. needs. You’ve already identified your needs. Be realistic about how much you spend on dining, entertainment, vacations, etc.
- Estimate the cost of property taxes, homeowners insurance, potential homeowners association fees, and any other expenses that are affiliated with homeownership. Again, a knowledgeable real estate agent can give you an estimate.
- Finally, you should budget each month for an emergency fund. A good rule of thumb is 10% or 20% of your monthly income, but any amount that you can afford will be helpful.
Now you should have a sense of how much money you can spend on housing.
Find an experienced, trusted real estate agent
You will probably begin searching for properties online with Zillow or GreatHomes.org and by going to open houses on your own. This is valuable experience to understand the market; however, if you want to invest in a good home at a good price, you’ll find that an experienced, trusted agent is essential. An EXPERIENCED agent will provide expertise on local market conditions, neighborhoods, and schools, let you know if a purchase price is fair, help you craft an offer, help you understand any issues, and negotiate on your behalf.
Top agents will have access to homes that haven’t been publicly listed yet. Get recommendations from people and online sources you trust and then interview a number of agents. The right agent can make all the difference, especially in Marin County’s competitive market.
See Why do I need a dedicated agent for buying a Marin Home?
Get pre-approved for a mortgage
Your real estate agent will recommend a trusted mortgage advisor. It’s a good idea to begin gathering the documents you’ll need, sooner than later. You’ll likely be asked to supply:
- The last two years of your tax returns
- Pay stubs or other documentation of income for the last two months
- All bank statements, plus brokerage and investment account statements, for the last two years
- Proof of funds for down payment and closing costs, or a gift letter, if someone is giving you the money.