So you think you’re ready to buy a house? Fantastic! This is an exciting time, and there are things you can do to prepare for your purchase, and to make sure buying a home in the near future is in your very best interest. Read on for my Top 10 Tips for prospective buyers.
1. Know your Credit Score
If you have no idea what your credit score is, you aren’t ready to buy a house today. A few months before you begin your search, obtain a copy of your credit score (for both of you if you are part of a couple.) Make sure your credit report is accurate, fix any errors you find, and if there are issues, talk to a mortgage or credit professional about what you can do to fix or improve questionable items. Unless you are able to purchase a home in cash, you’ll most likely need a mortgage on your new home. In order to qualify, and to secure the best interest rate possible, you’ll want your credit to be the best it can be.
2. Consider your Down Payment
Shop around to determine what your list of potential lenders requires in the form of a down payment. Not all lenders require a full 20% down. Depending on your credit score, income and other factors, you may be able to secure a mortgage with a smaller down payment.
3. Understand Mortgage Terms
Before you prepare to make one of your biggest financial investments, educate yourself on mortgage terms such as points, variable and fixed interest rates, debt to income ration and any other new vocabulary a mortgage professional may throw your way.
4. Know How Much House you can Afford
Before you fall in love with the country manner or city highrise of your dreams, know what you can really afford to pay for a home. Most Mortgage Calculators base “how much home you can afford” on the assumption that you are safe to spend 30% of your income on housing expenses. That may be true for a two income household with no children, but once you add kids, student loans, travel plans or the cost of a lengthy commute into the mix, 30% may not be realistic. You can calculate how much house you can afford here, but remember that these calculations are likely based on the notion that you are safe to spend 30% of your income on housing. You should spend at least as much time understanding how your finances will work once you own a home as you do shopping for one – and you’ll enjoy your home more in the long run when you ensure on the front end that you are investing in a home you can truly afford.
5. Get Pre-Approved for a Mortgage – BEFORE you Begin the House Hunt
Before you start shopping and fall in love with a home, you need to know how much mortgage you qualify for. Don’t confuse “Pre-Approval” for a mortgage with “Pre-Qualification.” Pre-Qualification means the lender has given your income and credit a quick glance and believes you are likely to qualify for a home loan. Pre-Approval is the official stamp on your application that says precisely how much mortgage you qualify for. If you want Sellers to take your offer seriously, you’ll need to send your Pre-Approval Letter along with your offer. Particularly in a Seller’s market, an offer without a Pre-Approval Letter lacks credibility and may not be taken seriously.
Stay tuned for 5 more Top Tips for Buyers, and if you are ready to make a move in the Denver-area Real Estate market, give me a buzz.