Purchasing a new home is a new and exciting venture that many people look forward to. But did you know there’s a wrong way to do it? There are plenty of things you should avoid doing that will prevent costly mistakes down the road.
To steer clear of these errors, make sure you’re taking proactive steps that ensure your home buying experience runs as smoothly as possible. If you’re questioning where to start in your real estate journey or are just looking for more information, read on for five things you need to do before you buy a new home!
Get A Credit Report
Having an updated credit report is essential for almost any big ticket item you’d like to buy. This is because a credit report is typically a quality indicator for lenders as to the type of borrower you will be.
While the entire report is required for items like cars, homes and other purchases that demand monthly payments, perhaps the most important component is your credit score. The most influential factors that affect your credit score include your total credit usage, your debt-to-income ratio, your payment history, the age of your credit history and any new accounts you open.
It’s important to keep away from making any additional big purchases while you’re attempting to buy a home, as this will increase your debt-to-income ratio and in turn, take a hit on your credit score. Instead, work on paying down any debt you do have and fight the urge to make any impulse buys until your report is completed and in good standing.
Assess How Much You Can Actually Afford
Staying within your means is key to enduring a successful home buying experience. While there’s always an opportunity to refinance your home loan, doing it right the first time can save you from a lot of unnecessary headaches.
Don’t let your vision get bigger than your budget at the time of signing. Lay out all of your finances and assess where cutbacks can be made in order to put you in better financial standing at the time of purchase. If you see chances where you can put some money away or other areas where you can budget more effectively, take the time and energy to do so. It may be the best decision you made come time to house hunt!
Save For A Down Payment
For many, saving money is no easy task. Therefore, it’s vital to take an energetic approach to your nest egg creation effort. Or, if you prefer the old school method, keep an empty jar or piggy bank handy so you always have a place to put your spare change.
If you’re more into modern day techniques, you can utilize a less antiquated approach and sign up for a money management app using your smartphone. There are plenty of apps to choose from with various methods for saving up. Try an app that stockpiles the extra change from each daily purchase you make or use a system that automatically deposits a set amount from each paycheck you receive to see your rainy day fund grow quicker than you thought was possible.
Collect Your Financial Statements
Avoid scurrying to find everything (and the anxiety that comes with it) by knowing exactly what you need beforehand. While your credit report is a staple in the list of documents you need to buy a home, there’s a bunch of others you should also dust off as well. The two other records you will need to recover are proof of income and your earnest money deposit.
When you gather evidence for proof of income be sure to include pay stubs, W-2 forms of both you and your spouse, bank statements, tax returns, an asset statement as well as your license for easy identification. You can make photocopies of each to hand over to potential lenders and hang on to the originals for safekeeping.
Your earnest money deposit is next on the list. Earnest money is a good faith deposit to the seller to secure a contract when showing interest in buying the home. While this money is a piece of a down payment, it is not used in place of it. This is key as it is possible to lose the amount if the contract goes null and void. And remember, when making an earnest money deposit, never give the amount directly to the seller. Instead, go through a valid third party like a real estate brokerage, legal firm or title company.
Secure Mortgage Pre-Approval
Working with a trusted mortgage lender is an important step in acquiring a new home. There are plenty of reputable companies that can provide either face-to-face or online services. Getting pre-approved for a mortgage requires several key elements.
The first is collecting and presenting all of the documents in the previous tip so you provide ample confirmation of your borrowing ability to the lender. By providing in-depth information on your credit, debt, income and assets, a lender is better able to assess how much you will qualify for and the terms and conditions that will best fit your situation. Don’t forget, the amount that is presented to you during this time is an official offer by the lender in which you can either accept, modify or reject.