4 Things Every Home-Shopper Should Do Before They Hit the Market
Buying a home is a big deal. It’s typically one of the biggest financial transactions that many Americans undergo in their lifetimes. It is not something you just do. You need to get your ducks in a row. You absolutely have to prepare if you want to ensure your home-buying success.
How do you prepare? You prepare by following these 4 simple steps that are guaranteed to make your home buying experience smoother.
Check Your Credit Scores
Your credit scores ultimately play a key role in determining your mortgage rate, so it’s imperative that you know what they are and if you need to improve them.
There are services, Credit Karma is my recommendation, that will help you access your scores without the monthly fee credit score shenanigans that other credit reporting sites use to fleece consumers. In general, scores of 740 or better are considered excellent with most lenders requiring a minimum 580 in order to get approved for FHA mortgage financing.
Talk To A Mortgage Lender BEFORE You Talk to a Real Estate Agent
Failure to get pre-approved is the most common mistake potential homebuyers make. Unless you know where your comfortable mortgage payment zone intersects with what you qualify for, you are wasting your time searching online for a home.
This is why real estate agents will typically require you to speak with a lender before they’ll start showing you homes — they want to make sure you can buy the homes you want to see. They want to avoid wasting everyone’s time, especially their time.
Understanding how much home you can afford is different from knowing how much home you can be qualified to purchase. A lender may tell you that, based on your income, assets, and credit, you can qualify to purchase a home for a maximum of $400,000.
Do you really want to buy a home at the maximum amount you can afford? You may know that you’re only comfortable paying a certain amount each month and, in order to limit your payment to that number, your maximum purchase price falls to $325,000.
This is the difference between what you can afford, and for what you’re qualified. You should always operate with a conservative mentality when deciding your comfortable payment level.
Do not, under any circumstances, allow a real estate agent or mortgage lender to convince you to buy more home than you can comfortably afford. Unless, of course, you are interested in repeating the 2007 housing crash disaster.
Budget Correctly By Including Property Taxes & Homeowners Insurance
In the excitement of shopping for a home, buyers sometimes find an online mortgage calculator, punch in a few numbers, and get a number that they believe will be their monthly mortgage payment. The unfortunate truth is that mortgage calculators just part of the story. You need to know what taxes and insurance will cost you, too.
Usually, you will need to call an insurance agent for a semi-reasonable estimate of your homeowners insurance. The property tax numbers are usually available online as they are part of public record. Check them for every home you are interested in possibly buying. Your complete payment is known as yourPITI — principal, interest, taxes, and insurance — and PITI is what you pay to your lender monthly.
Save Money and Get Your Assets In Order
One of the biggest hassles homebuyers face with the mortgage process is their asset situation. Understand that not only do you need the right amount of assets to apply for your down payment, closing costs and escrow accounts, but you also need “reserves”.
So, what are reserves? Reserves are nothing more than an underwriting safety net. One month of reserves equals one full mortgage payment (including property taxes and insurance).
Most mortgage underwriting guidelines require you to have reserves. Depending on your loan type, the guidelines might indicate 3 months, 6 months or even a year. Afterall, “stuff” happens and you might lose your job, get sick or die in a tragic accident. Reserves ensure that you have the time you need to overcome these obstacles and not lose your home to foreclosure.
It is also hugely important to clean up your depository accounts. By clean up, I mean ensure no cash deposits that cannot be sourced are littering your statements, limit your transfers between accounts and ensure you have no NSF charges occured in the few months leading to your mortgage application.
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