Before you begin your home search, you’ll want to make sure your finances are in order. Talking money isn’t fun, but being on top of your finances before you start attending open houses and seeing properties with a Real Estate agent will be extremely beneficial. By being proactive, you’ll start looking in the right price range, be able to put in an offer when you are ready (no waiting around), and have piece of mind that you have purchased a home you can afford.
Know Your Credit Score.
One of the best ways to pay less for your future home, is to get a good interest rate.The higher your credit score, the lower your monthly payments will be. You’ll want to know your credit score (you can check for free on Credit Karma) to help determine the price range of the homes you should be looking at. If your credit score is low, you may have a very difficult time getting a mortgage. A score of 750 or higher will get you the best rates available. This can save you quite a lot of money in the long run so be sure to check your score and fix any issues that may be keeping you from having a higher score.
Ideally, you should have at least 20 percent of the house’s purchase price saved as a down payment. You can certainly buy a house without that (many people do) but putting down at least 20 percent can save you money in the long run. You’ll almost certainly avoid paying private mortgage insurance (PMI), or you won’t have to pay it for long. PMI is typically 1 to 2 percent of the value of the loan and paid monthly. It may not seem like much, but if it adds, say, $100 to your monthly mortgage payment, that may motivate you to start saving now.
In other words, if you happen to have $20,000 in a bank account, and you’re thinking of buying a house in the not-so distant future, hang onto it. Avoid making big purchases while you’re in the home buying process.
Know Your budget.
Take into consideration all the expenses owning a home comes with. This is a yearly, long term set of expenses you need to be ready for. Be sure to think about mortgage, interest, property taxes, a possible rise in utilities, and other expenses like pool maintenance or lawn care.
A preapproval is different from a prequalification. With a prequalification, the lender relies on information provided by the buyer to estimate how much the borrower could qualify for. With a preapproval, the lender verifies the borrower’s information and documentation to determine exactly how much it would be willing to lend to that borrower.
This is the best way to begin your home search. By getting preapproved you’ll know what you can afford from the get-go. Some sellers don’t show homes to buyers that aren’t preapproved so by going through this process, you’ll have access to everything on the market within your budget. A preapproval is not a loan commitment, but it helps speed up the underwriting and loan approval process so if you fall in love with a home, you’ll be able to act much quicker.