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COMPLETE Guide to Buying a Home
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Buying
a home is a time of enormous possibilities and intense
preparation. Doing some preliminary planning before
you begin your home search will make the entire process
more manageable and less overwhelming.
As
part of your initial game plan, you should:
- Fine-tune
your credit rating
- Explore
mortgage pre-qualification and pre-approval
- Become
an educated buyer
- Create
a wish list to help you learn what you need, and what
you want - or don't want - in a new home.
Check
Your Credit Rating
Even if you're sure you have excellent credit, it's
wise to double-check at the outset. Straightening out
any errors or disputed items now will avoid troublesome
holdups down the road when you're waiting for mortgage
approval. You may see disputed items, in addition to
errors caused by a faulty social security number, a
name similar to yours, or a court ordered judgment you
paid off that hasn't been cleared from the public records.
If such items appear, write a letter to the appropriate
credit bureau. Credit bureaus are required to help you
straighten things out in a reasonable time (usually
30 days).
TIP:
Make sure that any outdated derogatory entries are
deleted from your credit file. Adverse credit information
is not supposed to be reported or included on your credit
report after seven years (except bankruptcy information,
which can be reported up to ten years).
TIP: Officially cancel inactive credit cards.
If you have an inactive credit card with a $5,000 limit,
even though you owe nothing on it, some mortgage lenders
will consider that a potential future debt. Too many
inactive credit cards with significant credit limits
could keep you from obtaining a mortgage loan. Don't
just cut up your extra cards; officially cancel them,
and do it now so there will be time for the news to
reach the credit bureaus.
TIP: Hold off on making any major credit card
or car purchases while you're waiting to apply for a
mortgage. Monthly payments you're obligated to pay
will be counted against you, and reduce the amount of
the mortgage loan you'll be offered. Even if you've
been pre-approved for a mortgage, that approval is subject
to last-minute evaluation of your financial situation,
and a spending spree for appliances, furniture and other
goodies intended for your new home may wreck your chances
for buying it.
Pre-qualification
and Pre-approval on a Mortgage
Any reputable real estate broker will "pre-qualify"
you for a mortgage before you start house-hunting. This
process includes analyzing your income, assets and present
debt to estimate what you may be able to afford on a
house purchase. Mortgage brokers, or a lender's own
mortgage counselors can also calculate the same sort
of informal estimate for you.
Obtaining
mortgage "pre-approval" is another thing entirely. It
means that you have in hand a lender's written commitment
to put together a loan for you (subject only to the
particular house you want to buy passing the lender's
appraisal). Pre-approval makes you a strong buyer, welcomed
by sellers. With most other purchasers, sellers must
tie the house up on a contract while waiting to see
if the would-be buyer can really obtain financing. The
down side is that you must pay application fees to cover
the lender's paperwork in verifying your employment,
income, assets, debts and credit rating. If you later
decide not to use that particular lender, you'd have
to start all over again elsewhere - with no rebate.
Pre-approval will also speed up the entire mortgage
procedure once you've found the house you want. The
only remaining question will be whether the house will
"appraise" for enough to warrant the loan.
Become
an Educated Buyer: Research Neighborhoods, Read Ads
and Visit Open Houses
If you were changing cities, the standard advice used
to be to subscribe to the local newspaper in the new
town and start reading local news and classified ads
to get a feeling for different neighborhoods. Although
that's still a good idea, you can simplify and streamline
the house-hunting process by using the Internet to Find
a Home, Find a REALTOR, Find a Neighborhood, and Find
Resources.
For
local moves, you have the advantage of driving around
neighborhoods that interest you and looking at lawn
signs. Particularly on weekends, you will see "Open
House" postings. Don't hesitate to walk in, even if
you're not ready to buy yet. Visiting open houses is
an excellent way to familiarize yourself with the market
and judge various real estate agents you may meet along
the way, and it won't put you under obligation to anyone.
Your
Wish List
Making sure you end up with the right home involves
figuring out exactly what features you need, want and
don't want in a home. Before starting your search, you
should make a "wish list" to decide which features are
absolutely essential, which are nice "extras" if you
happen to find them, and which are completely undesirable.
The more specific you can be about what you're looking
for from the outset, the more effective your home search
will be. Also keep in mind, that in the end, every home
purchase is a compromise.
Your
next step is to assess
your finances.
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