Homeownership is an important milestone and quite possibly the biggest purchase of your life. Before starting your home buying journey, you’ll want to be financially prepared. If you’re thinking about buying a home, here are four smart steps to take before you begin your search:
1. Build Your Credit
Credit history is extremely important when buying a home, in fact it’s one of the key factors lenders evaluate when considering you for a home loan. Your credit score helps determine which type of home loan you’ll qualify for and also impacts your mortgage interest rate, so a higher score could lead to a lower monthly mortgage payment. While most home loans require a credit score of 620 or higher, there are some loans available for credit scores in the 500 range. But keep in mind with a lower credit score, you’ll be looking at higher interest rates! Focus your efforts on lowering your debt utilization, making your payments on time, and paying off student loan debt. These will have the highest impact on boosting your credit and put you on the road to homeownership.
*Pro Tip: ReScore recommends paying credit card balances down to 3-5% of the limit 30-60 days before you apply for a loan. This will increase your FICO scores!
2. Save for Your Down Payment
Contrary to what many people believe, in most cases you don’t need a 20% down payment to buy a home. In fact, your down payment could be substantially less than that, depending on the type of home loan. Keep in mind that the more you’re able to contribute as a down payment, the lower your monthly payment will be. And with the current low mortgage rates helping to keep those monthly payments low, buying a home might be more affordable than you’d expect. Start saving now and you could have enough for your down payment saved sooner than you think!
*Pro Tip: Many checking accounts allow you to create separate partitions to help you save toward certain goals. Set up yours to automatically pull a specified amount each month into a separate house fund. You’ll be surprised how quickly you can save toward your goal!
3. Find the Right Realtor
Your realtor is your ally and helps you make smart decisions throughout the home buying process. The right real estate professional knows the local market, can guide you toward a sound investment, and is committed to helping you find your dream home. Make sure your realtor is experienced, knowledgeable and licensed. It’s also important to find a realtor you connect with and who understands what you’re looking for. And don’t underestimate the importance of having a good rapport and being able to communicate comfortably with your realtor—after all, the home buying process can take up to 6 months or sometimes longer, depending on the home and neighborhood you’re looking for. All other factors aside, moving is stressful and you need someone on your side to help keep you calm and collected during the process.
*Did You Know: A real estate transaction deals with over 400(approx.) moving pieces along the way. This may seem overwhelming, but with the help of a professional guiding you through the process, you’ll come out on the other side a proud homeowner with a new place to call home!
4. Get Pre-Approved
Getting pre-approved is an important step that’s often overlooked. Before buying a home, you’ll need to know how much money you can borrow so you can determine how much home you can afford. Your real estate agent should be able to point you in the right direction and refer you to a trusted loan officer. Pre-approval also helps let sellers know you’re a serious buyer when you’re ready to make an offer.
At Dream Homes by Jen, our team is committed to helping you find your dream home. Contact us to set up a consultation and get your home buying process started!