Homeownership may be the height of the American dream, but for many immigrants, it can often seem like an impossibility.
Here’s the good news: it isn’t! According to a 2018 Pew Research study, nearly 53 percent of all immigrants own a home. And while homeownership rates have significantly dropped for native-born Americans over the last twenty years, they have exponentially grown for immigrants.
It’s a great time to buy a home, and with the right planning, you’ll be able to find the place of your dreams. Ready to learn more? Get started with our seven-step Home Purchasing Guide for U.S. Immigrants:
Step 1: Check (And Improve!) Your Credit Score
Your credit score determines which mortgages you qualify for, and most conventional loans require a minimum FICO® score of 620. Higher credit scores typically generate better interest rates, so if you need to boost your scores, be sure to check out these tips to get started.
Need to check your credit score? You can do so for free through Experian.
Step 2: Save For Upfront Costs
Before you obtain your mortgage, you’ll first need to set money aside to cover the downpayment and closing costs.
While the numbers always vary, the minimum downpayment on a conventional loan typically hovers around 3 percent. Bear in mind that the more you pay upfront, the less you’ll owe in monthly mortgage payments. To explore your options and plan ahead, be sure to use this free down payment calculator by Bankrate.
As for closing costs — the various fees and taxes associated with your loan — you can expect to pay an additional 3 to 4 percent of the total purchase.
Step 3: Explore & Compare Your Mortgage Options
Once your savings are secure and your credit score is in a good position, it’s time to explore your mortgage options. While there are many different types of mortgages at your disposal, these are the top three options for immigrants:
- Conventional Mortgages, which can often be obtained by first-time buyers for as little as 3 percent down. These are the traditional offerings by government-sponsored enterprises like Fannie Mae and Freddie Mac.
- FHA (Federal House Association) Loans, which are government guaranteed and offer down payments as low as 3.5 percent. FHA loans typically offer more generous credit parameters (sometimes as low as a 580 FICO® score), which can be ideal for first-time buyers.
- USDA Loans: For rural homebuyers, these loans usually do not require any down payment and are guaranteed by the U.S. Department of Agriculture.
Want to start exploring your options? Click here to view Nerdwallet’s list of the seven best mortgage lenders for immigrants.
Step 4: Get A Pre-Approval Letter
Once you decide on a lender, be sure to obtain a mortgage “preapproval” letter. This is the documentation that shows real estate agents that you’re a genuine buyer, and it could help give you the competitive edge over consumers without it.
During the preapproval process, lenders will conduct a thorough investigation of your financial life, including your credit score, reported income, assets and more. After you’re preapproved, you’ll be guaranteed to receive the loan (as long as your financial picture doesn’t change).
Step 5: Choose Your Real Estate Agent
It’s crucial to have a real estate agent on your team. As your advocate, they’ll help you find the right home at the right price, negotiate on your behalf, and handle all of the complicated paperwork.
Contrary to public opinion, real estate agents are only paid commission on the sale of a home, so their success is entirely dependent on yours.
While real estate agents can help you save money, time, and stress, don’t rush to find one. Seek agent referrals from other recent home buyers, interview multiple candidates, and be sure to request references from each of them.
When you speak with them, don’t be afraid to ask pointed questions including:
- Have you worked with first-time home buyers before?
- Have you worked with immigrant home buyers before?
- How many customers are you currently helping?
- What differentiates you from other agents?
Take your time to find the right real estate agent. You won’t regret it.
Step 6: Start Shopping For Houses
It’s finally time to start house hunting! Once you’ve established your priorities and shared them with your real estate agent, you can start browsing various listings.
Pace yourself, and be wary of eliminating properties until you actually see them in person. If you don’t have time to visit the house, take advantage of 3D tours which have become increasingly popular since the pandemic.
As you view the listings your agent provides, take notes on all of your likes and dislikes, and when you visit in person, take pictures of everything. This will help you keep track of what you’ve seen and enable you to narrow down the most viable options.
After you develop a shortlist, start turning your attention to the inner workings of your favorite homes. Take a closer look at the electrical systems, the plumbing, insulation, and any chimneys or gas furnaces that might need special attention. The potential cost of repairs and renovations can often cost far more than the initial asking price.
Remember: when you buy a home, you’re buying all of it — good and bad.
Step 7: Make An Offer
You’ve found the perfect home! Now it’s time to make an offer.
As you and your agent decide how much you’re willing to pay, be sure to consider the following:
- Comparable Homes: What are the asking prices of other, similar homes in the area?
- Necessary Renovations: Does the property need a lot of repairs? What would the projected renovation costs be? Could the seller make those repairs for you?
- Competition: If the house is clearly in demand, what are other buyers offering for it? Does it make sense to consider making a backup offer?
The answers to these questions will help you determine the size of your cash deposit, which is often referred to as “earnest money.” While the typical good faith deposit is around 2 percent of the total home price, the more money you provide, the more attractive you’ll be to the seller.
Keep in mind that earnest money isn’t lost; it’ll simply be held in an escrow account and contributed to your mortgage down payment at closing.
Step 8: Pay For A Home Inspection
After your offer has been accepted, you’ll need to pay for a home inspection. These are the comprehensive assessments of the structural and mechanical integrity of the house.
A home inspector will examine everything from the floors and walls to the drainage systems, roofing, window alignment and more. They will ensure that all appliances, heating and cooling systems, and ventilation are safe and up to health standards.
Most standard home inspections don’t include tests for things like mold, radon, pests, or asbestos, so you may have to schedule multiple specialists to cover your bases.
Buying a home is a major milestone in life. We wish you all the best in your journey and hope this guide helps you move forward with confidence.
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