Getting ready to buy a house, especially your first home, can seem intimidating. But when you prepare your documents and finances, and plan for your budget, you’ll be more confident, and also have a more enjoyable home-shopping experience.
Here are six important things you can do to get ready to buy a house…
Getting Ready to Buy a House: Five Important But Simple Steps
1. Check Your Credit
While credit is not the only factor that comes into play, your score can play an important role in overall mortgage approval, and it can impact your interest rate and downpayment requirements as well. One of the first steps, therefore, should be to check your credit, which you can do by contacting the three major credit bureaus: TransUnion, Experian, and Equifax.
Getting the reports is usually very easy. Once you have the report in hand, you should inspect it for various items, including:
- Missing Accounts: An existing line of credit, one on which you are current, can boost your score, so if any credit cards or loans are not shown, you should make sure they are included by contacting the bureaus.
- Overdue Accounts: You may see that your report shows lines of credit that are overdue or have late payments. If possible, you should settle these accounts and improve your credit history.
- Errors: It’s not unheard of for someone to have errors on their account, such as negative information from the wrong person (such as another “John Smith”) or to have late payments recorded when the payment was made on time. You can contact the credit bureau to have this negative information removed.
Seeing your credit score will also help you prepare for the application process, as you’ll have a general idea of your score and a better understanding for why your score may be low, average, or high.
2. Determine Your Budget (Both Monthly and Total)
The next step in your preparation is to determine how much you can afford, which means figuring your monthly budget, as well as the total housing you can purchase. If you are currently renting, you probably have a strong idea for how much you can afford, but remember that other factors come into play, such as taxes, home repairs, and possibly HOA fees, depending on where and what you purchase.
While people’s overall budgets vary, most people will want to keep their mortgage payments between 25% to 40% of their total monthly income. Take a good look at your budget, including monthly expenses, to determine how much you can comfortably afford every month. If you know your monthly budget, you can estimate your total purchase price.
3. Browse Online for Listed Homes In Your Desired Area
Once you know, in general, how much you will likely be able to afford, you can start to look at the area where you want to purchase and see what homes are available, and if they fit within your price range. At this point, you’re simply browsing, gathering information and getting a general idea of the local market. Look for homes in your budget and see if they have the right space and features that you need from a home.
If you are shopping for a home and browsing prices, you may discover that the homes where you want to live are out of your price range.
4. Start Saving for a Downpayment
For good reason, the downpayment is one of the biggest concerns for many homebuyers, especially young first-time homebuyers who are often living on a smaller budget. The downpayment impacts so many other aspects of the home-shopping process, and it can change not only your housing options, but also your interest rate.
Many shoppers, however, believe that you need a 20% downpayment to purchase a home. This is far from the truth, as you can buy a home with as little as 3.5% to 5% in some cases, and in certain (although limited) situations you can buy a home with no downpayment. However, having a large downpayment is best, and the more you can bring the better, so it helps to start saving right away.
It may be best to start a plan to generate a downpayment. Saving a small amount, even just $100 a week, can add up to a large downpayment over an extended period. If needed, you may want to tighten your budget in order to reach your downpayment goals. By eliminating some unnecessary expenses, you may be able to create a larger downpayment than you thought possible, which will increase your buying options and potentially create better mortgage terms.
5. Get Pre-Qualified
If you are ready to shop and serious about buying a home, it’s time to get pre-qualified for a mortgage loan. If you know how much you can afford and you know your credit score is solid, you might think that getting pre-qualified for a loan could be a waste of time.
However, getting pre-qualified is one of the most fundamental parts of the real-estate process, as it demonstrates to sellers and real estate agents that you are a committed, motivated, and (most importantly) capable buyer. Getting pre-qualified is so important, in fact, that some real estate professionals, as well as sellers, won’t work with buyers until they are pre-qualified. Basically, they want to know that they are not wasting their time on someone who is just thinking about maybe buying a home, or someone who may not even qualify for the purchase of the property.
Pre-qualification is different than pre-approval, which is a more complex, detailed process and involves more documents, as well as a specific property. Pre-qualification is more of a general statement by a lender that, assuming nothing changes in your financial situation, you will most likely qualify for the loan.
Work with a Lending Agent Who Knows How to Help
If you are getting ready to buy a house, let us help. We’ll deliver the service and support you deserve, helping you get pre-qualified so you can shop with confidence!
