Must-Do-List-Before-Home-BuyingMust-Do List before you Buy a Home

There are some major steps that all potential home buyers should complete before signing a contract to purchase a property. Here are our top suggested items that should be completed beforehand.

Maximize Credit Score

The higher your credit score the easier it will be to get approved for a home loan. The simplest way to increase any credit score is in 3 parts:

1. Make ALL PAYMENTS on time (credit card, student loan, car loan, rent, utilities, insurance)

2. Pay down on your existing credit card debt as much as possible.

3. Do not close any credit card accounts and do not take on any new debt of any kind until a month after the mortgage closing

Save Up a Nest Egg (Down Payment & Closing Costs)

Depending on your credit score it may be necessary to make a small down payment on a home. Anywhere from 3% to 10% of the home’s asking price could be required of you. There are also programs available to first time home buyers where no down payment is necessary. Contact us directly for more details!

In addition to the down payment there will most likely be some closing costs that must be paid from your funds. This could include the homeowner’s insurance, a survey, an appraisal and the property taxes for a partial year. Finally, it is wise to have a little extra in savings. A home is in constant need of maintenance and will require the occasional repair bill. It is much easier to pay for these items when you have prepared for them.

Understand your Acceptable Payment

It is a good idea to look at how much you are comfortable paying for a home. The payment on the home will likely have at least 3 components and possibly 4. These are:

1. Principal and interest payment on the loan

2. Monthly amount for homeowner’s insurance

3. Monthly amount for property taxes

4. Mortgage Insurance for buyers that purchase a home with less than 20% down

An experienced mortgage lender can provide estimates for all 4 items to give you some idea of how much a particular home in a certain area will cost. We do have a free mortgage payment calculator available to you on our website.

Get a Mortgage Pre-Approval

Once your credit score is at an acceptable level (generally 600+, ideally above 640) and you have the nest egg saved it is time to talk to a mortgage lender. The mortgage lender will review your credit history, employment history and rent records to determine the best loan that is a fit for your acceptable payment range. Once you are approved the lender can provide you with a pre-approval letter to present to real estate agents. The agent can submit this pre-approval letter to home sellers when you make an offer, which gives your offer more validity.

Choose a Home, Not a Mortgage

This is likely the most important item. Most lenders have access to a wide range of loans that can help you purchase a home. It is more important to be happy with the home than the loan. Buying a home, especially with a low down payment, will mean that you are choosing to live in the home for at least 5 years. As long as you can really afford the payment, it is most important that you are happy with the location and the features of your next house.

About the author

Michael Collins, CDPE, SFR

Broker

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