In a few weeks, it will be 2018; and if you have dreams of a new home for the new year, you should start preparing now. Buying a house – whether it’s your first home, or an upgrade – requires preparation. The more prepared you are, the more confident you will be and the more prepared you will be to move forward when you find the home of your dreams.
First, check your credit score. This step is important if you are planning to apply for a mortgage or home loan. To qualify for a mortgage and get the best possible terms, you need to have a good credit score. It will also give you a chance to make sure there aren’t any errors on your report. If you do find an error, you will have time to correct it before applying for your mortgage.
There are a lot of websites that can help you understand where your credit score is at. The scores aren’t always 100% accurate so take them with a grain of salt. While checking your credit history, resist the urge to close your older credit accounts; because these give you a good average length of credit history.
A credit score is a representation of your credit worthiness. Credit scores range from 300 to 850. A higher credit score is always better when taking out a mortgage. You are bound to get the best interest rate and best loan terms if your credit score is 740 or more. The interest you pay for your loan is important because it dictates the entire cost of your loan.
It’s possible for people with a credit score in the high 500s to turn it into a high 600s in just a few months. So if you need help improving your credit score, check out some online resources or talk to good mortgage lender for advice.
Second, no new credit cards. When preparing to buy a house, you should also stay away from new credit cards even if they come with irresistible benefits. I know it can be tempting this time of year as you complete your holiday shopping and the cashier informs you that you can save 20% on your purchase by opening a department store card. Tempting as saving at checkout can be, opening a new credit card may hurt your chances of getting a mortgage, or at least of getting the best rate. Just remember, even if you have already been pre-qualified or pre-approved for a loan, that is no guarantee! Opening a new line of credit can possibly make you lose your pre-approval. Nothing is set in stone, until the closing papers have been signed and the house is yours!
Third, start saving. Even if you qualify for a 0% down payment loan, chances are you will need money to close. Closing fees and other up-front costs include inspections, lender fees, home owners insurance and more. Plus, there are the moving expenses, which can include deposits for utilities.
Fourth, find a mortgage lender and get pre-approved. Before you start looking for a home to buy, you need to get a mortgage lender first. This step is critical because it lets you know the kind of home you can afford to buy. It saves you time, money and headaches during the home buying process. Need recommendations for a mortgage lender? Call me, we work with lenders every day and can point you in the right direction.
Being preapproved shows that you are a qualified potential buyer. Neither Realtors nor sellers want to waste time showing a home to someone who ultimately is unable to buy the home due to inability to qualify for a loan. Being preapproved also makes any purchase offers stronger in the event of multiple offers.
To apply for preapproval, your mortgage lender is likely to ask for four pieces of critical information.
- W-2s for the past 2 years or complete tax returns if self-employed
- Paystubs for the last 30 days
- Last 2 months of bank statements for all checking, savings, and asset accounts
- Names, addresses, and account numbers of all creditors.
Fifth, find a great Realtor. Before you find the house of your dreams, you will need to find a great Realtor to help you navigate the home buying process. A great Realtor will not only help you find a great house, but will also help you negotiate the best terms and price.
Talk to your Realtor about your must-haves and wants for your new home. Your Realtor will be able to keep an eye on the market and let you know when new homes that meet your criteria hit the market.
By starting the preparation process now, you will be well on your way to a new home in the new year.
By Bonnie Marlow, Realtor, Cisco Realty