Prepare to Buy

The home buying process can be a complicated and daunting experience for both new and seasoned home buyers. You can avoid some of the complexities associated with buying a new home by preparing well in advance. Start preparation six months to one year before you begin home shopping by arranging your finances and fine tuning your credit.

First obtain a copy of your tri-merge credit report. A tri-merge credit report combines information from all three major credit bureaus into one easy-to-read report. You can receive a free tri-merge credit report as part of our no cost, no obligation, future buyer program. Also, you can obtain a copy of your credit report directly from any of the three major credit bureaus –Equifax, Experian and TransUnion. In reviewing your report, you should search for errors and identity theft issues that will cause you to pay a higher interest rate or even cause problems getting a loan.  If you find any errors in your report, you are required to dispute them in writing in order for the bureaus to remove them.  Nonetheless, it can take weeks, or even months, for the creditors to research and correct these errors. Sometimes you will actually need the assistance of an attorney, which will also add a significant amount of time.

After examining your credit report, the score itself should be analyzed and attempts should be made to raise it. Your credit score will not only dictate your interest rate and loan program, but ultimately your loan approval. Therefore, you will want to achieve the highest possible credit score before you shop for a home. A credit score of 700 or more is considered excellent, while a credit score of 600 or less is considered poor. There are three keys to attaining a better credit score. The first is paying your bills on time. A single 30-day late payment can lower your score by 100 points or more. Once your score has been lowered due to a late payment, building it back up can take many months. In order to avoid late payments on your credit report, pay every bill by the due date or within the 30 day period following the due date. If your payment is received by the creditor after the 30 day period following the due date, you will incur a "30 day late" blemish on your credit report. If you don't have a reliable bill paying system, consider scheduling your bill payments to come directly from your checking/debit account thus ensuring on-time payments. The second key to a better credit score is maintaining revolving balances below one third of the credit limit. The closer you keep your balance to the credit limit the further your score will reduce. One trick is spreading your account balances over other existing accounts to achieve the lowest possible overall "balance-to-limit" ratios. Finally, the opening of brand new credit and the closing of existing credit will also reduce your credit score. Opening new credit indicates a need to live beyond your means which, in turn, reduces your credit score.  Closing existing accounts will reduce your overall "credit limit" thus increasing your total "balance-to-limit" ratio, resulting in a lower credit score.

Next, you must determine how much money you can save on a month-to-month basis.  In order to estimate the amount you can afford to spend on a new house payment, put aside as much money as possible each month for up to 6 months. An important point to consider is that you can typically afford $200 - $400 more per month due to the tax benefits of home ownership. To learn more about the tax benefits please consult with your mortgage professional and or tax advisor. Once you know how much you can spend on a monthly payment, you can revisit this website (bookmark this website now) and plug-in that amount to determine the sales price you can afford. The savings that you accrue during this step can be used towards the upfront costs of buying a home (earnest money for example) or to pay down debt which would qualify you for a larger home. Many quality loan programs offer "zero" down payment options; however, they are designed for those who have better than average credit scores. This is yet another incentive to start working on your credit score today. 

The final step in preparing to buy a home is getting pre-approved for a mortgage loan that best suits your needs. A pre-approval represents a commitment from a mortgage professional—like us—to give you a loan. For a seller, this is more valuable than a pre-qualification, which only reveals the loan options that you are eligible for without completing the formal loan application. In the pre-approval step, the mortgage professional will request permission to pull your credit report, giving you a great opportunity to check for false information as mentioned above. Remember, you will receive a free tri-merge credit report as part of our no cost, no obligation, future buyer program which will start you on your way to buying your next home.