We all know that buying a home is one of the most difficult decisions many of us face in our lifetimes. Just like any other major decision in life, education and planning can alleviate a good deal of stress. Here are some tips to help you navigate through the process.
Know your score. Whether you are a first time buyer, moving up or downsizing, knowing your credit score is the first step. Although many things have changed in the mortgage business, the credit score is still king (or queen)! This one number will dictate your mortgage rate and the amount of down payment required. You can start by pulling your credit reports from the 3 major credit reporting firms – Experian, TransUnion and Equifax. The Federal Trade Commission also ensures that you are entitled to one free credit report per year. Once you have the reports, check everything over to make sure it is correct. It does take some time to get things resolved if you find errors or items that are not yours, so be patient. While you are making sure your records are squeaky clean, do not open any new lines of credit, applyfor any other types of loans such as car loans or make career decisions which could impact your buying power. I recommend a full year of no new credit impacting decisions prior to obtaining financing.
Get pre-qualified. This means talking with a lender or mortgage broker. There are few worse things in a home buying situation than having a client fall in love with a home they think they can afford only to see their disappointment when they do not qualify for an adequate loan. We can all identify with wanting a beautiful home. But, remember, beautiful doesn’t have to mean living in the largest home in the county. Get out there and do your research. Locate a local mortgage lender through your bank or credit union or by calling a few realtors in your area for recommendations. Talk with your colleagues at work and ask them who they use. Being able to sit across the table from someone who can offer you finance options you feel fit your budget and your lifestyle can make all the difference in the world between a stressful loan process and a fairly non-stressful process.
Know how much house you can afford. When it comes to qualifying for a loan be realistic. No one wants a payment that leaves you house poor. No piece of property is worth your peace of mind or your health. Keep in mind that in most situations, you will not want to spend more than 28% of your income on a house payment. You can find a simple calculator to help you determine your limits at Bankrate.com or CNN Money.
Save for your closing costs and your down payment. Veteran’s Affairs Loans are the only loans which will not require a down payment. If you need help with a down payment, talk with your lender. There are many programs such as First Time Buyers Programs which can help with raising money for a down payment. You can find this resource and general information about buying a home on the U.S. Department of Housing and Urban Development website. And, don’t forget closing costs. These are not typically included in your loan package. However, that doesn’t necessarily mean you won’t be able to negotiate this with the seller.
Make sure you have some money in your savings account. Five months’ worth of mortgage payments to be exact. Showing that you have a cushion for unexpected expenses will show your lender that you do understand the importance of an emergency fund. We can all agree that life is truly full of the unexpected!