A lot of people who have never owned a home before are considering making their first home purchase right now for a few reasons. Prices are as low as they have been in years and in attractive markets all over the nation, houses are on sale. In addition, the $8000 tax credit for first time homebuyers provides a worthwhile incentive to get buyers off the fence and into a home. Ideally, the process of buying a home is one that a buyer should take slowly in order to be fully prepared. Hopefully, first time homebuyers who are looking at houses on the market now have been preparing for their purchase for the past several months.
In a perfect world, you should start planning a first-time home purchase about a year in advance. Here’s a breakdown of the things that need to happen before you should be out looking at specific homes.
– Obtain A Copy Of Your Credit Report: One of the most important numbers for any homeowner is their monthly payment, and this amount will depend on the way your lender feels about you as a credit risk. Errors on your credit report can cost you thousands of dollars in the form of higher mortgage rates and those errors can take months to get corrected.
– Research Mortgage Products: The mortgage world has become a complicated place and there are massive differences between different loan products. It’s hard to determine the type of mortgage that’s right for you if you don’t understand the various options that exist. Your goal should be a fixed-rate mortgage, or at least a mortgage that has a fixed-rate option for at least as long as you plan to stay in the home.
– Determine How Much You Can Afford: There are countless online calculators that can help you determine how much house you can afford based on your income, your savings, your outstanding debt, and other factors. One of the mistakes made by many homeowners buying a few years ago is that they bought as much house as they could qualify for. If your monthly mortgage payment is too high, pretty soon your home will own you and you won’t have the ability to travel, to save for retirement, to cover unforeseen expenses, or to have flexibility with your money.
– Fine-Tune Your Credit Score: When lenders pull your credit report after you apply for a loan, they’ll be looking for a few key factors. First, make sure there are as few late payments as possible. Next, reduce your credit utilization. In other words, if you have $10,000 in credit lines available, make sure you aren’t currently using more than 30% of those funds when you apply for your loan. A lower credit utilization rate is always better in the eyes of a lender. Finally, make sure any errors on your credit report have been resolved.
– Get Pre-Approved: Many people get pre-qualified by a lender without getting an official pre-approval. A pre-approval is a more firm commitment from a lender to extend financing to a buyer. Approaching a seller with a letter of pre-approval will make you a more attractive buyer and could improve the likelihood of your offer being accepted, especially with so many potential buyers struggling to find financing right now.
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