Considering buying a home? Wondering how to get started? Or when to start the process? You stomach gets all tight just thinking about purchasing what could be your biggest financial investment to date. Understanding the process and having a plan may remove some of those butterflies. The biggest key to a successful stress reduced transaction is to start early and reduce the chances of last-minute surprises.
Up to 1 Year Out from Purchase
- Check your credit report. If you have items on your report the earlier, you tackle the issue(s) the more time there is to raise your credit scores. You can check your credit for FREE through AnnualCreditReport.com, the only free online credit report authorized by Federal law.
- Check your FICO credit score. The FICO score indicates your creditworthiness and determines your interest rates and terms of the loan. The higher the FICO credit score the more options are open to you as a buyer.
- Reduce your outstanding debt. Get your outstanding debt (Credit Cards & Store Cards) below 30% of the approved limit on the credit account and if possible, get it down below 10% of the limit. Be sure you are paying on time and early if you must use the card, to keep it below these levels before reporting date. If you have a large number of cards and balances you might want to meet with a credit counselor, like Joe Camacho with Phenix Group to get a plan together.
- Saving! The higher the down payment you have the more options you have with mortgage companies. So, start saving what you will need now. You will need to prove you have had your down payment balances in your account’s months in advance of closing as proof of funds.
The above-mentioned items may mean a change of your spending patterns. You are going to want to look at cutting back on frivolous expenditures, expensive vacations and forgo luxury purchases at least until after closing. It is so sad to see someone do all this hard work, get approved for their dream home then go out and make a last-minute purchase of furniture or a vehicle. Then no longer be able to qualify for their home loan. It unfortunately happens more than you would think.
Around 6 Month Point Prior to Purchase
- Start researching you mortgage options. There are many different types of mortgages and first time buyer programs. We will expand upon these programs in future articles. Do research and find out the risks that can incur with different types of mortgages? At this point, you may want to sit down with a FREE consultation with Real Estate + Credit Professionals.
- Look into Typical Unforeseen Home Ownership Costs. These can include, but not limited to, Homeowners Associations (HOA) fees, Home Warranty Products, Special Assessment Zones, and Utilities Rates to name a few.
- Recheck you credit status and scores. Have you made the progress you need to qualify for a mortgage? If not, you will need to kick you credit repair into overdrive. At this point, you need to consider hiring a credit counselor, like Joe Camacho with Phenix Group to assist you getting to the scores you desire.
3 Month Point – Critical Credit Period
- You will need to reduce credit usage. FICO score is affected by how much of your available credit lines you have outstanding. Learn when your credit provider reports balances outstanding on your card to the bureau. This typically, does not correspond with your debt’s payment date. Try to pay down any balances before reporting date. Keep your balances below 30% and as close or below 10% if possible.
- It is very important at this point to not open or close any accounts. You are now close to starting the home buying process and these steps can have a serious impact on your credit scores. This is critical to remember even after you have a letter from your mortgage lender qualifying you for a home mortgage and up and to and including closing the transaction.
- Begin researching neighborhoods and real estate agents. What is considered a great neighborhood is going to be the items important to you like; distance to work, good schools, shopping, parks, activities and great amenities. We are adding this suggested task at the 3-month period, but nothing wrong about starting this process much earlier.
The “Home” Stretch – 2 Months Out
- You need to be very cautious during this period in having your credit pulled for any type of financial transaction. You should have considered the different mortgage options out there already and only have a limited amount of mortgage companies pull your credit report. However, if you are shopping mortgage companies do them in a short period of time and they will be counted as one pull
- Check mortgage rates and programs like 1st time buyer assistant programs. Know you FICO score to get mortgage rates, they don’t have to pull your credit to discuss rates with you
- Once you have selected your mortgage company you want to get pre-qualified for a mortgage. This way you know how much you can afford. Plus, you will need this letter for your agent to submit offers for you. The seller wants to know you can afford to purchase the home for purpose of reviewing and accepting the contract.
You should now be prepared with a better credit score, larger down payment and information on mortgages to go out and find your dream home to make a confident offer on! Good luck out there.