Buying a home is perhaps the biggest financial decision you have ever or will make. It’s important to take some time to get educated and learn more about how the whole process works. I’ve put together a few key tips that will help you start our journey!
Step 1: Check your credit report and score
Before contacting a lender, it’s smart to check your credit report. By law, you can get a free report once a year through Annualcreditreport.com. The report pulls data from the three major credit-reporting agencies: Equifax, TransUnion and Experian. Having the information in hand before you talk with a lender lets you dispute any errors in the reporting. Based on your credit report, Fair Isaac & Co. (FICO) assigns you a credit score ranging from 350 to 850. The higher your credit score, the lower the interest rate on your mortgage. Scores are based on:
Payment history: Have you paid your bills on time?
Amounts owed: What is your overall debt?
Length of credit history: How long have you been borrowing money? Mortgage lenders like to see a long credit history.
New credit: Have you applied for new credit?
Types of credit: Lenders like to see a variety of types such as bank cards, car loans and student loans.
So what is a good credit score? You can expect a good mortgage rate at anything above 720. Home buyers who pursue an FHA loan can usually secure a loan if their credit is 580 or over.
Step 2: Figure out how much you can afford
Or better yet, decide how much you’re willing to pay. Just because you can qualify for a larger mortgage doesn’t mean you want to have that kind of payment each month. Use the mortgage affordability calculator to help determine what you can afford. Now is also a good time to research your housing market and start going to open houses in your prospective neighborhood to give you a good sense of what your money will get you.
Step 3: Find a real estate agent
This person will be your lifeline through the process. Not so long ago, people didn’t have much to go on when selecting an agent. A postcard in the mail or a name on a sign might have been all you had to consider if you didn’t have a personal referral. But now it’s a breeze to check reviews online. Go ahead and meet with a few agents and ask some questions. Your agent is your chief advocate, confidante and hand-holder in the process so you want to find a good fit.
Step 4: Get pre-approved by a lender
It’s a smart move to get pre-approved for a loan early in your home search. A licensed lender in your area with a history of positive customer ratings, and personal one on one support is key so you can understand the lending process. Our team trusts Summit Funding and their branch manager as an incredible asset.
Pre-approval requires the lender to pull the credit information (see Step 1) and asses your financial situation. The lender will then give you a letter that states the amount they would be willing to lend you. If you get in a multiple-offer scenario, being pre-approved may give you an edge because the seller will have more confidence that you will be approved for a loan large enough to purchase their home.
You are not obligated to get a loan from the lender who you get a mortgage pre-approval from. When it’s time to officially apply for a mortgage, it’s best to get loan estimates from at least three lenders to compare their interest rates and fees.
Step 5: Start looking at homes
Let the serious shopping begin! By now you’ve talked things over with your agent and you both know what you really want and need in a home. Armed with this, your price range and knowledge of the local area, look at listings online and with your agent, who will come up with properties for you to tour. Chances are you’ll discover some new things to love or hate about homes and refine your search.
Step 6: Make an offer
For most buyers, this is when the butterflies really show up. Once you’ve found a home you want your agent will work with you to craft an offer. Remember, the listing price is only a starting point. Your agent will understand the market and help guide you to make the most attractive offer, whether it’s below, at or above listing price. Are there any contingencies to your offer? Will you require an inspection? These are all things your agent will help you with. Once you’ve submitted the offer you get to wait. It will seem interminable. You may get neither a simple yes or no but a counteroffer to consider. It can be something of a dance. If you get a solid “no,” it’s back to Step 5. If you get to a “yes,” celebrate!
Have Questions? I’m happy to answer! [email protected]