Many people are hoping to achieve their American dream of buying a home. That doesn’t mean, however, everyone is financially prepared. Here are seven things you need to do before buying a home.
Your credit report and score are your tickets to buying a home. They showcase your credit responsibility and worthiness. Your credit score has a huge impact on your mortgage rate. The interest rates will be lower the higher your credit score is. This means you’ll end up owing a lot less money over the life of the loan.
The length of your credit history matters, too. You look more credit-responsible, the longer your credit history.
One of your first steps to pre-buying a home is cleaning up your credit report. Call one of the three major credit bureaus, such as Equifax, Experian, and TransUnion, If there are errors to have them removed.
See if you can consolidate your debt if you notice a high credit utilization. You may be able to refinance for lower interest payments or transfer a big credit card balance to another card with friendlier repayment terms. Try to keep your utilization below 30% of your total limit.
Finally, avoid getting new credit within a year of buying a home. This can cause a temporary dip in your score.
Give your budget a hard assessment if you’re working on a clean bill of credit health. Try using the 28-36 rule to see where your money is going. The rule says your maximum household expenses shouldn’t exceed 28% of your gross monthly income. Your debt, credit cards, and loans shouldn’t exceed 36%.
Fine-tune your budget pre-homebuying so you can put the extra cash towards savings. The savings can be for a down payment, closing costs, or potentially higher home costs than you’re paying right now.
You might feel confident in buying the house of your dreams with a stellar credit score and a solid down payment built up. That house will stay in your dreams, however, until you get preapproved.
Getting prequalified is good, but it’s not the same thing. Prequalification is only based on the information you give a lender. Preapproval, on the other hand, is completing a mortgage application that looks at all your financial records.
Down payments are very similar for both homes and cars. The higher the down payment you make, the less each monthly payment will end up being. Homes are much more expensive, however than cars. The more you can put towards your down payment, the better off you’ll be every month.
Find someone who knows the neighborhoods of the home you’re looking at. It doesn’t matter if you’re looking for a home 300 miles away or three. A real estate agent is on the hunt for your best interest since they want you to find the right home and buy it. You don’t have to worry about costs up front because agents get their commission after a home is sold.
Not all realtors do the same great job. Make sure to do your research if you’re on the hunt for a great one. Look for one with top-notch credentials and a proven track record. It’s like interviewing someone for a job. Talk to a potential agent’s former clients. It may help you determine if they’re the right fit for you.
You probably think a home inspection is unnecessary. You toured the home yourself, after all, and would’ve seen any major issues. It may be true that you can spot the big problems, but what about the small ones?
Home inspectors go over every single detail of your home:
Getting an inspection is an important part of buying a home. If there is a water leak, for example, you can take this issue back to the seller for negotiation. They will either fix the problem before you buy it or lower their asking price of the home to accommodate the cost of fixing the leak.
You might not have considered what might happen if it doesn’t work out. What if your down payment isn’t enough? What if you don’t get the lender you wanted? Or what if your dream home has a bad roof?
Build the “just in case” options into your plan regardless of the setback. Try getting an FHA loan instead of a conventional one if your down payment is too low. Maybe you get the second-best lender if you don’t get the lender with the best terms. That old roof may save you a lot if you can talk the seller down. You’ll just need to make sure you can afford to replace it after you close on the home.
You will face different options for every step you make throughout the entire home-buying process. It’s important to remember how your choices are impacted along the way. Give our agency a call today. We’ve been helping home buyers in the area find their perfect home.