How to Buy a House in New Jersey: 6 Steps

Buying a house is a big financial decision that takes long-term planning. New Jersey's average home value is $537,916, higher than the national average of $362,481, making financial planning key when buying a home in the state.

Understanding down payment assistance programs, mortgage types and state regulations can make homebuying smoother in the Garden State. MoneyGeek offers tips to guide you, from saving for a down payment and picking the right location to finding the best loan for your needs and credit score.

New Jersey's homeowner vacancy rate in the second quarter of 2024 was 0.3%, according to the U.S. Census Bureau. This rate measures the percentage of vacant homes available for sale.

A rate of 0.3% signals a shortage of homes for sale, with fewer options for buyers. A stable rate is usually around 2%, offering more choices and flexibility. The current low rate means high competition among buyers, likely leading to rising prices and bidding wars.

Review your financial and credit history before buying a home in New Jersey. A strong financial profile can boost your chances of approval when applying for a mortgage.

Your credit score is a critical factor in the mortgage loans and interest rates you qualify for. A higher score improves your chances of getting a better rate. In the third quarter of 2023, New Jersey’s average credit score was 725, according to Experian.

If you have a bad credit score (below 580 on the FICO scale), you can still buy a house, but it may be harder to get mortgage approval. Check the table below for options based on minimum credit score requirements.

Source: Experian

Your DTI ratio shows how much of your monthly income goes to debt payments, helping lenders decide how much mortgage debt you can handle. New Jersey's average mortgage debt was $276,650 in the third quarter of 2023, according to Experian, highlighting the added financial responsibility of owning a home in the state.

Monthly debt payments factored into your DTI include your mortgage, student loans, car loans, credit card payments and other debts. Use our debt-to-income ratio calculator below to find your front-end DTI (housing expenses) and back-end DTI (all debts). This tool also shows your total monthly debt payments.

Buying a house you can't afford can cause financial stress. To avoid this, use the 28% rule, which suggests spending no more than 28% of your monthly income on your mortgage. This helps ensure your home is affordable.

In April 2024, the median annual income in New Jersey was $54,860, according to the U.S. Bureau of Labor Statistics. That’s a gross monthly income of $4,572 before taxes. Using the 28% rule, aim to spend no more than $1,280 on your mortgage each month.

Use our mortgage calculator below to estimate your monthly payment in New Jersey.

A down payment is the amount a buyer pays upfront when purchasing a house and is crucial to securing a mortgage. The typical down payment is 20% of the home's price, but this can be a big challenge for many buyers. In New Jersey, where the average home value is $537,916, a 20% down payment would be $107,583. For higher-priced homes, like one costing $555,000, the down payment would be $111,000.

Luckily, a 20% down payment isn't always required. Some loans, like VA loans, require no down payment, and FHA loans need only 3.5%.

If you put down less than 20%, your lender may require you to get private mortgage insurance (PMI). Use our PMI calculator to estimate your monthly PMI premium based on your credit score and down payment.

Several down payment assistance programs in New Jersey help make homeownership more accessible and affordable by covering some upfront costs. The New Jersey Housing and Mortgage Finance Agency (NJHMFA) is a key provider of this support.

See the table below for details on the down payment assistance program in New Jersey.

Finding the right location in New Jersey means looking at several factors. Start by checking the average home prices in areas that fit your budget. Proximity to family, friends, work and school can impact your daily life, so think about how close you want to be to these connections. Access to public transportation, parks, restaurants and shopping centers can also improve your quality of life.

Cost of living is important when deciding where to live. New Jersey's cost of living index in the first quarter of 2024 was 113.7, above the national average of 100, according to the Missouri Economic Research and Information Center (MERIC).

Key expenses to consider include:

• Food
• Health care
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check the table below for average home values in some New Jersey cities. You can also use our cost of living calculator to estimate expenses in different areas.

Source: Zillow

Working with a real estate agent can speed up your house hunt in New Jersey. They offer helpful advice, handle paperwork and provide access to more property options. Agents can also recommend service providers like title companies and inspectors to make your home purchase smoother.

When choosing an agent, take the time to interview candidates who know the neighborhoods you're interested in. Keep these tips in mind:

• Find someone who matches your needs and personality
• Verify their credentials, training and license
• Ensure they have in-depth knowledge of the area
• Compare rates from different agents

To find or verify real estate agents in the state, you can use the New Jersey Real Estate Commission's license holder search tool.

The homebuying process in New Jersey involves finding a mortgage that fits your budget. Options include conventional loans, jumbo loans, FHA loans, VA loans and USDA loans. You can select from 10-year, 15-year, 20-year or 30-year terms and decide between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). Choosing the best financing option can improve your approval chances and save you money over time.

Mortgage interest rates can change daily due to factors like the type of mortgage, the lender and the economy. While the interest rate reflects the cost of borrowing money, the annual percentage rate (APR) includes both the interest rate and other loan costs, giving a clearer picture of the total borrowing cost.

As of December 2024, the APR for a 30-year fixed conforming loan in New Jersey is 6.40%, and the APR for a 30-year fixed FHA loan is 7.86%. Check the table below for current rates in the state by mortgage type.

Getting a mortgage pre-approval in New Jersey is a smart move for homebuyers. It helps you understand how much a lender is willing to offer, allowing you to set a realistic budget. A pre-approval letter, usually valid for 60 to 90 days, shows sellers that you're a serious buyer with the financial means to make a purchase.

To secure a mortgage pre-approval, you need to submit several documents, including:

• Proof of identity (e.g., driver's license or passport)
• Income verification (e.g., pay stubs or tax returns)
• Credit history report
• Bank statements
• Employment verification

Knowing the difference between mortgage pre-approval and prequalification is important. Pre-approval involves a thorough financial analysis and provides a specific loan amount, while prequalification is a preliminary review based on self-reported information. Prequalification gives a general idea of what you might qualify for but lacks the detail and assurance of pre-approval.

Home inspections are highly recommended in the New Jersey homebuying process. They identify potential issues that could affect a home's value or safety. Inspectors examine areas like the roof, foundation, plumbing, electrical systems and HVAC. The inspection report details the condition of these components and notes any needed repairs.

For example, an inspection might find serious problems like a leaking roof or faulty wiring. These issues can affect the home's appraisal and lower its value. Sometimes, buyers may choose to rescind their offer based on the inspection results. Knowing about these possibilities helps buyers avoid unexpected costs.

The New Jersey Home Inspection Advisory Committee, under the Division of Consumer Affairs, regulates home inspections in the state. Inspectors must complete continuing education to meet the state’s standards of practice and provide thorough and professional inspections.

When selecting a home inspector, confirm they're licensed to ensure compliance with state regulations. Check online reviews and ask for references to learn about other clients' experiences. Use the New Jersey Division of Consumer Affairs' license search tool to find or verify licensed inspectors.

Home appraisals provide an unbiased estimate of the home's worth, ensuring buyers don't overpay and lenders don't lend more than the property's value. According to the 2023 Appraisal Survey from the National Association of Realtors (NAR), the median appraisal cost was $500.

While home inspections and appraisals are essential, they serve different purposes. An inspection evaluates the property's physical condition, while an appraisal assesses its market value. Lenders require appraisals to ensure the home's value supports the loan amount, protecting their investment.

Closing is the final step in buying a house in New Jersey, where the transfer of ownership occurs, and you receive the keys. Your lender must provide a closing disclosure document three days before the official closing. This document details your loan terms, projected monthly payments and closing costs. Plan a final walk-through of the property with your real estate agent near closing day to ensure it remains in the expected condition.

On closing day, you'll review and complete a lot of paperwork that finalizes your home purchase. Here are some documents you need to sign:

• Final loan application: Confirms your loan details and ensures that all the information is accurate and up-to-date.
• Deed transfer: Transfers property ownership from the seller to you. It establishes your legal rights as the new homeowner.
• Promissory mortgage note: Outlines your loan repayment terms, including the amount you owe, the interest rate and the repayment schedule. It's a legal promise to repay the loan under the specified terms.
• Homeowners insurance: Covers potential damage and liabilities to your home. Homeowners insurance in New Jersey offers tailored coverage for the specific risks in the state.

Closing costs are the fees paid at the end of the real estate transaction. New Jersey's average closing costs are $7,702, according to NAR. These costs cover several fees, including:

• Appraisal fee: Pays for a professional evaluation of the property's value.
• Title search and insurance fee: Covers the cost of verifying the property's title and insuring against future claims.
• Escrow deposit: Funds held in escrow to cover property taxes and insurance premiums.
• Prepaid costs: Upfront payments for future expenses such as homeowner’s insurance and property taxes.
• Other closing costs: Various administrative fees related to processing the mortgage.

Learning the different first-time homebuyer programs in New Jersey can help you own a home faster.

Buying a house in New Jersey is a long-term financial commitment. We answered common questions about the process to help you begin your journey as a homebuyer.