For many people, it feels like buying a home is a difficult task, something that will never happen. Yet with planning, research, budgeting and work, you can make buying a home a reality. There is no time like the present to start moving towards the goal of buying a home. Procrastination is the “would be” home buyers’ worst enemy and can become a major obstacle if you’re not careful. Timing is everything when you’re buying a home. There are deadlines and inspections that must be met and there is an expiration date for everything.
If you are looking to buy a home in 2017, here is a list of the Top 10 things you should do to put you on that path:
Check your credit score
Most people will finance their home purchase, especially their first home, and lenders will pull your credit report to determine financing terms and interest rate. Your credit or FICO scores range from 300 to 850, and the higher your score, the better interest rate you’ll get. If your score is too low, you may not be able to obtain financing or you could get stuck with mortgage terms that are not favorable. You will need to start repairing any derogatory credit before you apply for a loan. If your credit is decent, then you’ll want to start boosting your credit. You can check your credit score online, or ask your Realtor for a referral to a lender who can not online check it for you but can also make suggestions on what you can do to increase your score.
Build your savings account
It’s no secret that after the recent presidential election, mortgage rates are on the rise. Even though you can still get a pretty good rate, a larger down payment can help keep your rate and your monthly payment lower. It will also benefit you to have additional funds for closing costs and for reserves after closing in case there are some unforeseen maintenance issues.
Gather your personal and financial information
When you go to apply for a loan the lender will ask you for tons of personal and financial information. This information is a required part of the lending process and you won’t be able to close without it. It’s good to get a head start on knowing what you need and keeping track of it. Organize your paperwork so that it is readily available. You will need the following:
- Identification/driver’s license and social security card
- At least 2 months of pay stubs or proof of income
- Tax returns for the last 2 years
- Proof of residency last 2 years (if you’re renting they may want to see proof of paid rent)
- 2-3 months’ worth of bank statements
- List of debts including student loans and credit cards
- List of assets
Before you look for a home or even shop for a lender, you need to determine your budget. This is the amount you can comfortably spend for housing each month. You will need to add up ALL your monthly expenses like groceries, car payment, credit cards, utilities and anything else you pay but leave out your rental or mortgage payment since this will be replaced by your new loan. Then add up your income and deduct the monthly expenses from your net pay and you’ll have an idea. Bankrate has a program you can use to help determine the loan you’d qualify for.
Shop for a Lender
Don’t just settle for the first lender you find. Shop around and compare all your options. When buying a home, remember to compare costs and terms, and find a lender who can help you compare different loan types and options. Local Realtors can be a great source of referrals for reputable lenders, and you can check online reviews as well.
It is imperative you have your budget in order before trying to qualify for a loan. If you still need help with it, most loan officers can assist you. Once you’ve selected your lender, you’ll need to complete a loan application and provide all the paperwork together we mentioned earlier. Once your paperwork is complete, many lenders can pre-approve you within 48 to 72 hours. Typically, pre-approval letters are good for 60-90 days. If your approval letter expires, you’ll have to submit updated bank statements and pay stubs.
No new credit or debt
No matter how tempting the terms are on a credit card or how many miles you’ll get on this new platinum reward card, do not open any new lines of credit. Each time someone pulls your credit, the inquiry appears and it can lower your score a few points. Also, opening a line of credit before you apply for a loan or during the loan application process can hurt you, especially if you put debt on that line of credit. Lenders consider something called debt ratio and this will play a big factor on how they view your capability to repay debt.
Find a Realtor
Who you work with matters. Make sure you select a real estate agent who is familiar with areas where you want to purchase and who is available to work with your schedule and time frame. Ask for references or check reviews on line. Schedule a consultation to determine whether the agent is a good fit for you.
Location, location, location
This goes without saying. Location is everything in real estate and you will need to determine where you want to live. This may be based on budget, where you work and what you’re looking for in a neighborhood, but you should ideally identify several areas you’re interested in. Limiting yourself to one location compounds the stress of limited inventory and pressed time constraints. Do your research, and then ask your real estate agent if they have other suggestions based on your priorities. Remember to check out schools, special taxes, flood zones, crime rates, and possible HOA’s. These are all things that could be deal breakers for some buyers.
Make a Wish List
What would your dream home look like? While the home you buy may not match that exact vision, you’d like it to be as close to the dream as possible. Put together your list of priorities. What are the “must have” features of the home, and what are features you’d like to have? Would you prefer a move-in ready home or a fixer you can put your own stamp on? Are there any things that would be dealbreakers for you? For example, would you consider living on a busy street or next to a school? Make sure your real estate agent has a clear picture of what’s important to you.
Don’t let another year pass you by as a renter. Take the rewarding leap into homeownership and make your money work for you instead of throwing it away. Follow the steps we’ve outlined here and you will be well on your way. If you’d like to schedule a time to discuss your plans, simply fill out the form below and we’d be happy to help.