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“An expert is someone who has succeeded in making decisions and judgements simpler through knowing what to pay attention to and what to ignore.”

Edward de Bono


Seven steps to take before you buy a home

So you are thinking of buying a home–how exciting. By doing your homework before you buy, you’ll feel more confident during the home buying process.

1. Decide how much home you can afford

Sit down and write a budget.  Generally, you can afford a home priced 2 to 3 times your gross income but everyone has specific needs. Remember to consider all costs every homeowner must cover: property taxes, home insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family.  A complete budget will include–daycare,  car payments and car insurance, health insurance, food, clothing allowance, entertainment, credit card payments and student loans. Be as complete as possible.

2. Develop your home wish list

Be honest about which features you must have and which you’d like to have.  Come up with your top-five must-haves and top-five wants to help you focus your search and make a logical, rather than emotional, choice when home shopping.

3. Select where you want to live

Make a list of your top-five community priorities, such as commute time, schools, and recreational facilities. Ask your REALTOR® to help you identify three to four target neighborhoods based on your priorities.

4. Start saving

Have you saved enough money to qualify for a mortgage and cover your down payment?  A small down payment preserves your savings for emergencies.  A VA loan can have as little as 0% down and a FHA loan can have 3.5% down.

However, the lower your down payment, the higher the loan amount you’ll need to qualify for, and if you still qualify, the higher your monthly payment. Your down payment size can also influence your interest rate and the type of loan you can get.

Finally, if your down payment is less than 20%, you’ll be required to purchase private mortgage insurance. Depending on the size of your loan, PMI can add hundreds to your monthly payment. Check with your state and local government for mortgage and down payment assistance programs for first-time buyers.

5. Ask about all the costs before you sign

A down payment is just one home buying cost. The buyer will need to pay for —the home inspections, the appraisal, and closing costs. Your realtor can give you an estimate of closing costs.  Tally up the extras you’ll also want to buy after you move-in, such as window coverings and patio furniture for your new yard.

6. Get your credit in order

A credit report details your borrowing history, including any late payments and bad debts, and typically includes a credit score. Lenders lean heavily on your credit report and credit score in determining whether, how much, and at what interest rate to lend for a home. Most require a minimum credit score of 620 for a home mortgage.

You’re entitled to free copies of your credit reports annually from the major credit bureaus: Equifax, Experian, and TransUnion. Order and then pore over them to ensure the information is accurate, and try to correct any errors before you buy. If your credit score isn’t up to snuff, the easiest ways to improve it are to pay every bill on time and pay down high credit card debt.

If you need help improving your credit score talk to me about a program to help you fix any credit problems.

7. Get prequalified

Meet with a lender to get a prequalification letter that says how much house you’re qualified to buy. Start gathering the paperwork your lender says it needs. Most want to see W-2 forms verifying your employment and income, copies of pay stubs, and two to four months of banking statements.

If you’re self-employed, you’ll need your current profit and loss statement, a current balance sheet, and personal and business income tax returns for the previous two years.

Consider your financing options. The longer the loan, the smaller your monthly payment. Fixed-rate mortgages offer payment certainty; an adjustable-rate mortgage offers a lower monthly payment. However, an adjustable-rate mortgage may adjust dramatically. Be sure to calculate your affordability at both the lowest and highest possible ARM rate.

I will be discussing these issues in greater depth in the articles coming up.