Before You Buy A Home – What You Need To Know
Before You Buy
Deciding to buy a house is an important decision. After all, this purchase will be one of the biggest investments you will make in your lifetime. Whether you are a first time homebuyer, looking to downsize or increase your living space, there are a few important things to consider and do before taking the plunge.
Consider How Long You Are Going to Be There.
If you can’t commit to remaining in the same place for at least a few years then owning a home isn’t for you, at least not yet. The transaction costs it takes to buy and sell can be significant, and those costs are typically not recouped immediately. If you sell too early you may end up losing money.
Get Your Credit in Shape.
Order free credit reports that everyone is entitled to request annually, thanks to federal law. While there are many sites on the Web offering “free” credit reports, many of those offers require you to sign up for a free trial of credit-monitoring service that will cost money. The official site where you can get free, no-strings attached, credit reports from Equifax, Experian and TransUnion credit bureaus is: www.annualcreditreport.com. You can receive one free credit report from each of these three agencies every year. After reviewing your credit reports, if any errors are found report them to that specific creditor and request that they be corrected.
Don’t Make Any Major Purchases Before Applying for a Mortgage.
When applying for a mortgage, lenders look for what is called your “debt-to-income” ratio. A debt-to-income ratio is the percentage of your gross monthly income (before taxes) that you spend towards your debt. This includes monthly housing costs containing: principal, interest, and taxes. It also includes your monthly consumer debt containing: credit cards, student loans, installment debt, and car payments.
Aim For Buying A Home You Can Really Afford.
Home buyers frequently get caught up in the process and fall in love with the house of their dreams- even if it is beyond their original budget. Even if the mortgage is approved, this could lead to trouble. The rule of thumb is that you can buy housing that runs two-and-one half times your annual salary. However, each circumstance is different. Use one of the calculators online to get a better handle on how your income, debts, and expenses affect what you can afford.
Don’t Worry If You Can’t Put Down the Usual 20 Percent.
There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages mortgages for up to 102% of the purchase price.
Don’t Move Money Around or Change Banks.
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets (checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds and even your company 401 K and retirement accounts). If you have been moving money between accounts, your statements may show large deposits and withdrawals. The underwriter (the person who approves the loan) will ask for a paper trail of all the withdrawals and deposits from your account. This may require you to produce cancelled checks, deposit receipts and other data which could get rather time consuming and tedious. Leave your money where it is until you’ve talked to a loan officer.
Get Pre-Approved for Your Mortgage.
Getting pre-approved will save yourself the grief of looking at houses you can’t afford, and will put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your
Don’t Quit Your Job
Verification of your employments will happen. It could happen the day of closing on your loan or even after the loan has been issued. Do not quit your job, do not put in your notice, do not change jobs. Typically the financing contingency ends prior to the closing date. If the financing contingency ends, and the loan is declined, there is a possibility you will lose your deposit (earnest) money.
Stay in Constant Contact with your Mortgage Lender
Once you have applied for a loan. Go over in detail all the above mentioned items with your lender. They might have other useful tips to ensure you get a loan. The lending industry is triple checking everything you put on the loan application. If they find one thing amiss, whether it is big or small, there is a good chance they will decline the loan.