First Steps in Home Buying
Buying a home is an exciting time, full of possibilities and pressures. Starting with some initial preparation and planning will help make the entire process more efficient and less overwhelming. Knowledge is the keys to successful real estate transactions.
To start the ball rolling, you should:
Check Your Credit Rating
Even if you are sure that your credit is excellent, it is wise to check on it at the outset. You'd be surprised how many mistakes are made due to incorrect social security numbers, similar names or errors made by retailers. If there is an error, write a letter to the appropriate credit bureau. They are required to assist you in sorting things out and usually takes about 30 days.
FICO Scores and Your Mortgage
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Organize Your Paperwork
Create a file that contains all your important financial documents. You'll need this to secure financing for your new home. Your file should contain:
- Financial statements
- Bank account statements
- Investments
- Credit card statements
- Auto loan statements
- Recent pay stubs
- Tax returns for the past two years
Determine How Much House You Can Afford
To save time and energy looking for a home and, even worse, finding the home you want and not being able to afford it, it is best to talk with a mortgage counselor before starting your search. They will tell you how much house you can afford: this will be the amount of mortgage you qualify for plus the amount of your down payment. They will also be able to advise you on how to select from the many different programs they offer, and on current interest rates. Don't forget that you will also have to factor in closing costs. These usually run at about 3% to 5% of the total purchase price.
Pre-Qualification vs. Pre-Approval for a Mortgage
Any reputable mortgage representative will "pre-qualify" you. This is an informal estimate of your income, assets and present debt to estimate the approximate price range you should be looking in for your new home.
Obtaining a mortgage "pre-approval" is something different. It means that you have a lender's written commitment to put together a loan for you, subject to certain contingencies including the house you want to purchase passing the lender's appraisal. It also tells the seller that a mortgage lender has reviewed your credit, so that there are no hidden surprises. A pre-approval makes you a stronger buyer and puts you at an advantage in bidding for a home.
Be Careful With Your Finances
Now is not a good time to make sudden career changes or large purchases. You want to approach home buying from a position of financial stability.
Investigate Towns and Neighborhoods
Look in newspapers and use the internet to investigate which areas offer homes that are in your price range. Drive around and visit neighborhoods that might interest you. You will soon get a feeling for your likes and dislikes.
Make a Wish List
Make a list of your priorities for your home. How many bedrooms and bathrooms do you need? What about schools, community facilities, etc.? Do you have a time-frame for moving? If, like most people, you are working on a budget, separate your needs from your wants. If you happen to find a home offering some of the extras on your wish list, that's a nice bonus, but remember that ultimately every home purchase is a compromise.
Your Dream is Closer Than You Think.