Seven Steps to Home Buying Readiness

Early preparation can save you thousands of dollars.

There are many reasons you might want to buy a house: your rent is rising, your roommates are annoying, your landlord doesn’t allow pets, you’d like to make a great investment in real estate…

Whatever your reason, as good as it is, the home buying process may feel intimidating, confusing, and stressful—but that doesn’t need to be the case.

Follow these steps and you’ll be on your way to homeownership:

·         Know your credit rating.  Your credit score measures your eligibility for a mortgage--it helps your lender determine the rate you’ll pay on your loan.  You can request your credit report from three credit bureaus: Experian, TransUnion, and Equifax at annualcreditreport.com where you can request one free credit report per year from each of the three bureaus. 

Know your debt-to-income ratio, or DTI.  DTI is the percent of your earnings dedicated to paying off debt.  It helps determine the home price you can afford.  Depending on the mortgage, lenders look for a DTI ratio no greater than 36%-43% of your income.  Paying down debt may increase your buying power.

·         Save, save, save.  Most mortgage loans require a down payment of 3-5% of purchase price for a conventional loan.  (USDA and VA loans do not require a downpayment).  Another expense for a downpayment under 20% may be the cost of mortgage insurance, which protects your lender in case you cannot make payments.  Closing costs, too, are an expense to budget for—roughly 2-5% of the loan amount.

·         Identify your budget.  You can estimate your home buying budget with an online mortgage calculator.  You will need to talk with a lender to accurately determine your price range.

·         Know your loan priorities.  It’s best to understand your preferences before you go loan shopping because there are many considerations when choosing a loan.  Some things to ask yourself are: Do I want to make the smallest down payment?  Do I want to find the lowest monthly payment?  Is it important to not pay mortgage insurance?  What type of loan can I pay off in the shortest amount of time? 

Your loan officer will help you pick your best loan when you know your priorities.

·         Get a loan preapproval.  You will be preapproved for a loan when you provide tax returns, paystubs, and when your lender checks your credit. 

A loan preapproval signals to real estate agents and sellers that you are a serious buyer: you know what you can afford, and a lender is prepared to make a loan.  This is a critical step in the home buying process; don’t go shopping without knowing your lender and price range. 

·         Find a real estate agent.  Interview agents you identify through referrals, open houses, and online.  Work with a buyer’s agent rather than the listing agent.  

Buying a house is an investment of time, energy, money, and even emotion.  Your good preparation may save you thousands of dollars; when you follow the guidelines above, you will be ready to shop for your house with understanding, confidence, and time- and money-saving readiness. 

Check out our reviews on Google