How to Buy a House in New Jersey: A Homebuyer’s Guide

Updated: March 3, 2023

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On average, the value of a home in New Jersey is $472K. Home prices in the state are much more expensive than a typical house in the U.S., which has an average value of $358K. That said, if you compare growth in median home values, New Jersey is slower than the national average — with 11% growth versus 13.5% over the same period, respectively.

If you’re a first-time homebuyer in New Jersey, MoneyGeek’s guide can help you understand and navigate the homebuying process without falling into deep debt. We broke down the importance of mortgage pre-approvals, the various costs associated with closing a mortgage and other significant New Jersey homebuying details.

Key Takeaways

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The average cost of a home in New Jersey is $472K, which is significantly higher than the national average of $358K.

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If you finance a home using a conventional loan, having a down payment of less than 20% requires you to purchase private mortgage insurance (PMI).

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Buying a house in New Jersey involves crucial steps like choosing an ideal location, calculating mortgage rates, gathering requirements and closing the loan.

Choose an Ideal Location

Location is an important consideration when buying a house in New Jersey. Remember that where you choose to live significantly impacts the cost of your home and mortgage. For instance, a house in Allentown costs approximately $582K, whereas a property in Wrightstown has an average price of $234K.

Aside from the home’s cost, it’s also crucial to assess factors like neighborhood culture, access to amenities and overall cost of living to determine the best place to buy a house in New Jersey.

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WORK WITH A REAL ESTATE AGENT

Buying a home in New Jersey can be challenging due to the number of properties available. Thus, working with a real estate agent can be advantageous to your situation. An agent can provide expert advice and guidance essential to your journey to homeownership.

One of the best ways to look for a real estate agent is through referrals. Ask any relative or friend who has previously bought a home for recommendations. Once you have a shortlist, check their references. Make sure that the real estate agent you choose has at least the following qualities:

  • Knowledgeable about the local housing market
  • Can communicate clearly
  • Possesses honesty and integrity

Always remember that doing your due diligence in verifying every agent's licensing and credentials can help you avoid issues down the line.

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CALCULATE THE COST OF LIVING

The cost of living can vary significantly based on where you choose to live in New Jersey. Some of the expenses you need to pay close attention to when looking for the ideal location include:

  • Groceries
  • Utilities (water, electricity)
  • Rent or mortgage
  • Income and property taxes
  • Transportation
  • Auto and health insurance premiums

Use MoneyGeek’s cost of living calculator to find out how the cost of living varies in different parts of New Jersey. Ultimately, knowing how much you’ll pay for necessary and discretionary expenses can help in making a well-informed decision.

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CONSIDER AFFORDABLE NEIGHBORHOODS

New Jersey is among the most expensive states in the U.S. In fact, it has a cost-of-living index of 114, higher than the national average of 100 for the third quarter of 2022. Fortunately, you can save on expenses by looking for the cheapest places to buy a house in New Jersey.

Choosing to live in a suburb or rural area may cost you less. However, you may have limited access to social amenities like hospitals, schools and shopping malls. Some of the most affordable areas in New Jersey include Trenton and Gloucester City.

It’s advisable to find a balance between property prices and the cost of living when selecting your ideal location.

Calculate Mortgage Rates

Understanding mortgage rates is an essential part of the homebuying process. Keep in mind that different mortgage options carry varying rates, and the best one for you will be based on your particular needs and buyer profile. Additionally, factors like credit score and income can affect the type of mortgage you qualify for and your interest rate.

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SEE YOUR MORTGAGE OPTIONS

Mortgage rates are determined by the type of home loan you choose. They also vary based on your lender and personal factors such as credit score, gross income and debt-to-income ratio. Typically, an excellent credit score can get you lower interest rates.

Below, MoneyGeek provided the average rates for different mortgage types:

It’s worth noting that you can only qualify for certain types of home loans if you meet their eligibility requirements. For example, you may only apply for a VA loan if you are an active service member or a veteran.

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USE A MORTGAGE CALCULATOR

It’s important to establish a budget before pursuing homeownership in New Jersey. Use MoneyGeek’s mortgage calculator to get an estimate of your overall mortgage payment. Our tool incorporates principal and interest along with other homeownership costs, such as property taxes, homeowners insurance and homeowners association (HOA) dues.

If you qualify for both conventional home loans and government-backed mortgages, it may be tough to choose between them. Fortunately, we have an FHA vs. conventional loan calculator that can differentiate between the two mortgage programs and help you figure out the best option for you.

After getting an estimate, the next step is finding a mortgage lender. Make sure to compare different lending options in your area to find the one that suits your particular needs and budget.

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KNOW YOUR QUALIFICATIONS

Your financial profile plays a significant role in the mortgage rates and terms you qualify for. Mortgage lenders usually consider several factors when reviewing your loan application. These include:

  • Credit score: The lowest mortgage rates are often reserved for borrowers with excellent credit scores.
  • Debt-to-income ratio (DTI): This shows how much of your income goes to your existing debts.
  • Down payment: Having a larger down payment can result in lower rates and monthly payments.
  • Income: Your income usually helps in showing your ability to repay the mortgage.

It’s advisable to improve these factors before submitting a mortgage application to avoid getting declined.

Prepare Down Payment Requirements

Before buying a house in New Jersey, it’s critical to find out how much money you can put down on a home. Remember that your down payment greatly affects the total cost of your loan. That said, some mortgage options — namely, VA and USDA home loans — don’t require a down payment.

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DETERMINE DOWN PAYMENT REQUIREMENTS

Generally, down payment requirements vary depending on the type of mortgage you choose. For instance, conventional loans require you to put at least 20% down to avoid private mortgage insurance (PMI), whereas FHA loans allow you to put down as little as 3.5%.

Zero-down-payment mortgage programs do exist, but they usually have strict eligibility requirements you must meet. For example, USDA loans won’t require a down payment if you’re a low-income borrower looking to purchase a home in an eligible rural area.

Take note that your down payment also affects the terms of your loan. A higher down payment usually means lower interest rates and monthly mortgage payments.

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CALCULATE MORTGAGE INSURANCE

Depending on your down payment, you may be required to purchase private mortgage insurance (PMI). This usually protects the lender from any losses in case you default on your loan.

Conventional loans often require PMI if you put down less than 20% of a home’s purchase price. Meanwhile, FHA and USDA loans don’t necessitate PMI for low down payments, but they require an upfront mortgage insurance premium (MIP) and guarantee fee, respectively. VA loans likewise don’t require PMI.

Ultimately, the best way to avoid PMI is to provide a larger down payment. Otherwise, you may only remove it once your mortgage balance drops to 80% of the home value.

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DOWN PAYMENT ASSISTANCE PROGRAMS

If you find yourself struggling to save up for a 20% down payment, don’t despair. There are several down payment assistance programs available in New Jersey that can help you purchase a home. These include:

You may find more down payment assistance programs by visiting the U.S. Department of Housing and Urban Development’s website. Note that some of those programs are limited to first-time homebuyers in New Jersey, while others are specific to low-income borrowers in the state.

Get Pre-Approved for a Mortgage

Getting pre-approved for a mortgage can help you determine how much money you can borrow to finance a home. Plus, having a mortgage pre-approval letter gains you an advantage when making a bid on a property.

Keep in mind that pre-approval is different from prequalification. While pre-approval means your lender is willing to loan you a specific amount, prequalification only shows whether or not you qualify for a loan.

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GATHER NECESSARY DOCUMENTS

When applying for a mortgage, you need to gather all the financial documents that your lender may require. These include:

  • W-2 forms
  • Tax returns
  • Pay stubs
  • Bank account statements
  • Investment statements
  • Driver's license
  • Social Security number

Depending on your mortgage type, your lender may also require additional documentation as part of the standard application process.

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TIME YOUR PRE-APPROVAL

Getting a mortgage pre-approval is valuable when you’re buying a home in New Jersey. The approval process usually takes up to 10 business days, but this may vary depending on the lender.

Remember that a mortgage pre-approval has an expiration date. It typically only lasts for up to 90 days. You can use this window to shop around for homes within your budget and make offers. If you haven’t settled on a house within that timeframe, you may ask your lender to renew the pre-approval.

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RECEIVE PRE-APPROVAL LETTER

Before a mortgage lender can pre-approve you, they need to verify your financial information to determine your eligibility. Afterward, they will issue a pre-approval letter if they approve you for a mortgage.

Your pre-approval letter indicates the lender’s commitment to providing you with a loan of a specified amount. Additionally, it contains several specific pieces of information, such as the maximum loan amount, loan term, interest rate and more.

There’s usually no limit to the number of pre-approvals you can get. However, the pre-approval process involves hard credit checks, which can negatively impact your credit score. Furthermore, pre-approvals only last for up to 90 days, so make sure to use that window to find a home that meets your standards and budget.

Conduct a Home Inspection

When you find your dream home, you’ll want to make sure it’s in great condition. A thorough home inspection conducted by a third-party professional usually helps in this regard. Through a home inspection, you can find out if there are any issues that you missed and make an informed decision about the property.

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CONTACT A LICENSED INSPECTOR

It’s usually up to you to find a licensed home inspector. You may ask your real estate agent for recommendations. Alternatively, you can ask your friends and family who recently purchased a home.

The home inspector you hire should be able to provide you with helpful observations about the current condition of the home and its different parts. These include:

  • Roof
  • Exterior
  • Basement, foundation and crawlspace
  • Heating
  • Cooling
  • Plumbing
  • Electrical
  • Fireplace
  • Attic, insulation and ventilation
  • Doors, windows and interiors

It’s advisable to discuss the inspector’s written report after the home inspection. This way, you can figure out if proceeding with the purchase is a wise decision.

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FOLLOW NEW JERSEY-SPECIFIC INSPECTIONS

Although home inspections are not mandatory in New Jersey, they are still strongly recommended. Inspections can provide valuable insight into the property’s overall condition and whether repairs are necessary.

Additionally, you may hire specialty home inspectors if you are worried about specific risks associated with your potential home. At an additional cost, they may conduct foundation inspection, mold inspection, radon testing and more.

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GO THROUGH APPRAISAL

A home appraisal is another property assessment essential to the process of buying a home. It typically involves a real estate appraiser, who will assign a dollar value to the home based on its current market value. This can assure your lender that you are not overborrowing.

A written report will be provided by the appraiser based on the in-person inspection they conducted. It should include details of the home and sales data supporting their determination of value.

Home appraisals are required in New Jersey if you are financing a home with a mortgage loan. They may cost around $300 to $400, which you, as the homebuyer, are responsible for.

Close Your Mortgage Loan

After reviewing the loan terms you received, you can now close your real estate transaction. Expect closing costs at this stage, which are fees you incur for securing a loan for your dream home. In some cases, the seller may cover a portion of your closing costs, subject to negotiation at the time you submit an offer.

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SIGN ALL DOCUMENTS

It’s advisable to have copies of the documents you provided your lender in case you receive a last-minute request for missing documents.

Some of the necessary documents you need for closing include:

  • Homeowners insurance policy: This financially protects you against damages to your new home’s physical structure and your personal belongings. Additionally, it provides protection against liability for accidents that happen to guests on your property.
  • Title insurance policy and survey: This shows that the property is clear of any liens. If not, your lender may refuse to close on the mortgage loan.

As always, it’s important to read the fine print before signing any paperwork. This prevents you from missing small details that may end up costing you more in the long run.

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PAY CLOSING COSTS

Here are some of the additional fees you need to pay when finalizing a real estate transaction:

  • Credit report: Your lender usually charges a fee for pulling your credit report.
  • Escrow: Lenders set up an account to handle payments for your homeowners insurance, property taxes and private mortgage insurance, if applicable.
  • Prepaid interest: This is the mortgage interest you owe between the date of closing and your first monthly mortgage payment.
  • Appraisal fee: This refers to the amount you pay an appraiser to determine the worth of your potential home.
  • Title insurance premium: This protects the lender in case the property has issues with ownership after the sale.
  • Recording fee: Government agencies charge this fee to file documents that show your ownership interest and possible liens on a property.
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COMPLETE YOUR HOME PURCHASE

To achieve homeownership in New Jersey, you need to pick your ideal location, estimate your mortgage rates and gather all the documents required by mortgage lenders. You also need a mortgage pre-approval and home inspection before closing a real estate transaction.

Once you’ve fulfilled these steps, you need to stay on top of your finances and monthly mortgage payments. We recommend setting up automatic payments to avoid missing payment dates.

Also, keep in mind that being a homeowner entails various responsibilities, such as anticipating unexpected and regular home maintenance fees. Only purchase a house if you are financially capable. Otherwise, you may fall into crippling debt while trying to keep up with the payments.

New Jersey Homebuying Details

When buying a home in New Jersey, it’s vital to research your new home’s location, explore different mortgage options and compare lenders to find the one suitable for your needs. If you struggle with saving for a down payment, you may seek out homeowner assistance programs specific to New Jersey.

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If you haven’t owned a home in New Jersey for three years, you may be eligible for down payment assistance from the NJHMFA. To participate in its program, you need to pair the DPA loan with an NJHMFA first mortgage loan.

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NJHMFA’s First-Time Homebuyer Mortgage Program has specific income and purchase price limits that you must meet to become eligible. Note that income limits are based on the location of purchase as well as your family size but may not exceed 140% of the area’s median income.

Frequently Asked Questions About Buying a Home in New Jersey

MoneyGeek answered the most commonly asked questions about the process of buying a home in New Jersey that you need to know.

What are the most important questions to ask when buying a house in New Jersey?
Is buying a house in New Jersey a good idea?
Is it wise to buy a house in New Jersey in 2023?
How much income do I need to buy a house in New Jersey?
How much is property tax in New Jersey?
Which New Jersey city is the cheapest to buy a home?
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