If you’re thinking about buying a home in 2017, October to December is the perfect time to “warm up” for the house hunt so you can hit the ground running in the new year.
Here is a great list about what prospective home buyers should do to ready themselves for buying a home. From organizing your finances to save money to finding a real estate agent and mortgage lender, there is plenty to keep you busy!
1. Check your credit score
A credit score is a numerical representation of your credit report. FICO scores range from 300 to 850, and the higher your score, the better. Good credit scores are very important when obtaining a mortgage. Typically, you’ll get the best interest rate on a loan if your score is 740 and above. So a higher credit score should help you getting a lower mortgage rate. If your credit score falls short, get busy repairing it. Correct any errors that might be on your report, start paying all your bills on time, and get your credit limit raised. Note, though, that you shouldn’t max out your card each month. It’s best to use 30% or less of your total available credit.
2. Don’t open new credit cards
It can be difficult to turn down those zero interest rate credit card offers you receive in the mail or see on the internet. Tempting as saving at checkout can be, opening new credit may hurt your chances of getting a mortgage, or at least of getting the best rate on a loan. Do not create another line of credit by getting a new credit card. What could save you a few dollars now could cost you far more in the long run if your mortgage payments will be higher. Use cash to purchase Christmas gifts instead of your credit card. Try to pay it off monthly and do not carry a balance. This will send the right message to the mortgage lenders when the time comes to apply for a mortgage.
3. Suggest financial gifts for the holidays
Besides the mortgage loan, you’ll need a sizable amount of cash to buy a house. There’s the down payment to consider, closing costs, and moving costs. You should also set aside money for unexpected repairs and costs, says Brian Betzler, regional sales manager at TD Bank. Not being prepared “is probably why nearly half of millennials incurred up to $5,000 in unexpected costs during the mortgage process, according to a recent TD survey,” he says.
A potential solution? Bulk up that emergency fund. “Instead of getting gifts for the holidays, [prospective home buyers] can suggest cash instead that will be put toward their home,” says Paul Sian, a Kentucky and Ohio agent. And remember, you might be getting some money back after you file your tax return. Don’t blow it on vacation. “A tax refund is a great way to add to your cash reserves for a down payment,” says David Hosterman, branch manager of Castle & Cooke Mortgage in Colorado.
4. Interview potential real estate agents
If your neighbor, relative, or friend of a friend happens to know (or is) a real estate agent, that’s great. This person might be the perfect agent for you. But you owe it to yourself to shop around. “Look for a real estate agent that is knowledgeable, good, integral, and can assist you in reaching the goal of home ownership,” says Chantay Bridges, a Los Angeles, CA, real estate agent. “Make sure they are not a novice, new, or just unaware of how to do a specific transaction.” The end of the year is usually a slow time for agents, so chances are, they’ll be more accommodating to making an appointment on your schedule.
5. Keep tabs on interest rates
If you hear that interest rates are at historic lows or that interest rates are on the rise, you should not assume that you can get the rock-bottom rate. Not everyone gets the same interest rate on a mortgage loan. It depends on your financial picture and on the lender you choose. “Everyone knows that home prices are, at least to some extent, negotiable, but we find loans to be the same,” says Warren Ward, CFP with WWA Planning & Investments. He advises that home buyers shop around for the lowest interest rates. Note that closing costs can vary too, so discuss with your real estate agent ways to keep yours down. You can always save some money by shopping around for movers, lawyers, appliance sales, home inspectors and whatever else you may need when moving to your new home.
6. Find a mortgage lender
Before you even start looking for a home (and yes, we even mean browsing online listings), look for a mortgage lender to find out if you can afford to buy a home. If you can’t right now, there’s no use torturing yourself by finding your dream home that’s just out of reach. But how do you find a lender? Start with your own bank. Then ask your real estate agent for the some mortgage brokers. Compare these offers. Look at what they offer, costs, points, and how long to close. Once you know how much home you can afford, perform your home search based on your pre-approval amount or less.
7. Get preapproved
When a lender gives your financials the once-over and pre-approves you for a mortgage, you’ll be able to show sellers that you really can buy their house. But how do you get pre-approved? By preparing a few documents, which you can do several months in advance of the actual purchase. Here are some of the things you need to buy a house.
Tax returns for the past two years
T4/T4A forms for the past two years
Paycheck stubs from the past few months
Proof of mortgage or rent payments for the past year
A list of all your debts, including credit cards, student loans, auto loans, and alimony
A list of all your assets, including bank statements, auto titles, real estate, and any investment accounts
DO NOT DO THESE if possible, before your home purchase: change jobs, make big purchases on credit (car, furniture, travel etc) and miss payments.
Do you plan to buy a home in 2017? How are you getting ready? Send me an email or call me 613 699-2079