Denise Pajak
If you hope to buy a home in the coming months, it’s important that you prepare now. Take steps to give yourself a competitive edge so you’ll be best positioned to buy the home you want when you find it.
Check your credit. You have the right to receive a free credit report once a year and can access it at www.annualcreditreport.com. However, in order to see your FICO score, you must pay for it. If you're serious about buying a home, go ahead and pay for your FICO score from one of the bureaus. If there are any errors on your reports, fix them now by going directly to the bureaus with written proof. It could take 30 to 60 days for corrections.
If there is an error or collection on your report for a nominal amount, consider swallowing your pride and paying it off instead of letting it linger and lowering your score. A lower credit score means a higher interest rate on your mortgage, which will cost you thousands over the long run.
Start saving money now. Be prepared for costs. Besides your down payment, you will need to pay for a full year's homeowner's insurance ($600 and up), an appraisal ($400), a home inspection ($250), moving expenses ($300-$3000), utility set-up fees ($200), closing costs ($3,000 and up) and escrow reserves ($1800 and up). Moreover, you will need to show the mortgage lender that you still have about three to six months of your new mortgage payment in reserve.
Get preapproved for a mortgage. The paperwork now required for a mortgage is much more in depth than it used to be. Gather two years of tax returns, W-2s, and two months of paystubs, bank statements and retirement account statements. Present these to your mortgage professional and focus first on what you can afford to pay each month, not the home's price.
A good mortgage originator will be sure to look at the details of your documents at this stage to address any issues that might come up later. For instance, issues like unreimbursed business expenses, child support payments and expenses associated with investment properties, to name a few. He or she should walk you through the costs, rates and terms of several different loan scenarios to determine the loan that best fits your needs. This way, you have realistic expectations as to how much house you can afford. Once you are ready to make an offer, that preapproval letter will be essential.
With your realistically determined target home price and your preapproval letter, you are now ready to start shopping. Realtors and sellers will take you more seriously for being prepared, and your efforts show a respect for both their time and yours.
Remember, your mortgage payment will be with you for a very long time. So do your homework now. These few simple steps will help you get a home and a mortgage that realistically fits your budget. They’ll remove stress from the home-buying process. And make it easier to find — and buy — the home of your dreams.
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