Finally decided on buying a house? Before you make and drastic actions, it is important to know that there are some valuable things that you have to do first. Below are top five things that you need to accomplish:
Clean-up your credit
You need to make sure that you clean up your credit and ensure that you have a high FICO score. If there are any mistakes, ensure that you correct them immediately. It normally takes 60 days for your FICO score to get adjusted so it is critical that you clean-up your score before you meet with a loan officer. Â You need to order a credit history report and check your fico score. Check any bad marks and make sure to notify the credit bureau to omit the mistakes. It also provides you the opportunity to see valid marks and enables you to take action immediately. The article on the effect of FICO score on your finances discusses on how your FICO affect the cost of borrowing money. In addition, if you have a low FICO score, here are some tips on how to increase your FICO score!
Have Enough Savings
You need to have savings for down payment and closing cost. Even if you qualify for down payment assistance, you would still need to cover closing cost unless you can negotiate with the seller paying for a portion of the closing cost. In addition, if you are buying a brand new home it may cost you additional money for any upgrades or if you are interested in foreclosure homes, some of them would require minor repairs such as flooring and painting. As discussed before, you maybe able to tap some of your retirement plan on a worst case scenario that you have no other sources.
In addition, some loan companies also require you to have a reserve equivalent to at least six months of the monthly mortgage payments. There may be exception on FHA loans since these are insured by the government but if you are on your own, banks may require some reserve. This is just like establishing an emergency fund in case you lose your job or become disabled temporarily, you need to have the ability to continue payments using those reserve. So when saving money, you may need to ensure the following are covered: down payment, closing cost, upgrades cost, and reserve.
Know how much you can afford
Buying a home is not just how much the mortgage payment (or PITI) is. There are other costs associated with it as discussed previously on the true cost of homeownership. So how do you calculate how much you can afford? The rule of thumb is that your home should be 30% of your debt-to-income ration. So if you make. Here is a good agent. Itâ€™s nice to know first.
Know which loan you qualify for and how much
The next step would be to meet with a mortgage to see which loans you qualify for. Loan agents would probably qualify you for a bigger house but you should stick with your own budget, unless you are expecting a raise in the future or planning on taking an extra job. Be careful not to fall into a trap as loan officers may try to entice you to get a bigger loan. It is to their benefit because they can get a bigger commission. Make sure that you stick to the amount that you can afford. But also try to get a range of how much you can qualify for so in case you like a house that is within that range.
Get pre-approved for a loan before making an offer
When you meet with the loan officers, make sure that you get a pre-approve loan. Sellers will take you seriously if you have a pre-approved loan. In addition, if you are buying HUD homes, they would require some pre-approval from a lender to ensure that youâ€™re qualified before they entertain any of your offers.
Car Negotiation Coach says
I’d also throw in finding a good realtor. One that is a good negotiator and is familiar with the neighborhoods that interest you. In the past, I’ve actually interviewed several realtors before selecting one and it’s made a big difference. You need to find someone you trust to help you make the biggest purchase of your life.
Sandy @ yesiamcheap says
Good roundup on what to do before you get ready to buy. The one thing that I would add is that the saving and the cleaning up the credit part will take some time so the should start doing that way in advance of when they want to buy. I’d say at least a year to save a decent amount and have the credit cord as high as possible.