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Be A Prepared Buyer

Approaching your home search organized and prepared can make a huge difference. Here are some of the many things you will want to consider before buying a home.

Understanding Your Credit Score

One of the first steps I recommend to buyers is to request their free credit reports from Experian, Equifax, and TransUnion. Each credit bureau has its own reporting schedules and format, so you might see an error on one that does not appear elsewhere. Check over your credit reports carefully to make sure there are no erroneous late payments or open lines of credit. If you do see any errors, it is important to notify the credit bureau and contact the creditor in question to resolve the issue. Resolution can often take some time, so the sooner you address things, the better. Through the credit bureaus you can also request your FICO credit score. Credit scores range from 300 (the lowest possible score) to 850 (the highest). Your credit score is an important factor in your mortgage application, read more here about how you can improve your score.

Maintaining Financial Stability

Since lenders look back at three months or more of your bank statements, pay stubs, and credit history, it is important to keep your habits as consistent as possible. Quitting your job, buying a car, or opening up a new credit card are all potential scenarios that could delay or prevent your loan from coming through. It is not uncommon that a buyer might try to open a hardware store credit card or shop for a new living room set before closing on a home. This is a huge risk and not at all advisable. Wait until the papers are signed and the keys in your hand before making any purchases or opening credit that could put a wrench in your plans.

Getting Preapproved

Preapproval is when a bank or mortgage company examines a borrower’s financial situation and determines how much they would reasonably lend to that borrower. A preapproval letter holds much more weight than a prequalification, since prequalification relies on information supplied by the borrower. In order to apply for preapproval, you need to provide documents such as pay stubs, W-2s, federal tax returns, credit reports, and bank statements.

Having a preapproval letter in hand can make you a much more powerful buyer. It demonstrates to sellers that you are serious about making a home purchase. Additionally, it is vital to have preapproval in order to get an accepted offer.

While preapproval for a loan is not a formal loan commitment by the lender, it does speed up the underwriting process later and it gives you a clearer sense of your budget.

Understanding Your Budget

It is important to remember that even though a lender tells you that you are approved to borrow $800,000, you might really only want to borrow $550,000. Think carefully about your monthly income and expenses now and what they will be like after your home purchase. Remember that in addition to mortgage payments there are home insurance and property tax payments to consider. You will also want to ensure that you have set aside some savings for unexpected repairs or other emergency purchases. Be careful to avoid buying so much house that you cannot afford to leave it once in a while!

Identifying and Prioritizing Your Wish List Items

This is the fun part! Thinking about what you are looking for in a home—from the style of architecture to the number of bathrooms—is incredibly helpful as you begin the process. Identifying towns or neighborhoods of interest can help focus your search and make the most of your time. Once you have your checklist of hopes and dreams though, realize that often the home you fall in love with won’t have every single item on your list. It is helpful to prioritize a handful of must-have elements so that you know where you are willing to compromise and what would be a deal-breaker. It is also good to have an open mind and to see some houses that you might not have otherwise chosen. You just might surprise yourself and fall in love with a cozy cape when you were originally dead set on a colonial!