Three Financial Tips for Homebuyers
Whether you’ll be a first-time homeowner or you’re starting the process for a second (or third) time, purchasing a house is a financial decision you do not want to take lightly. If you do things right, you’ll be ready to relax in your new abode. If you don’t, it could cause long-term financial stress and maybe even force you to move into a smaller place. Follow this advice and you’ll put yourself firmly in the former category.
Start Working On Your Credit Score Now
If you think you’d like to buy a home in the next few years, you should start working on raising your credit score ASAP. A score under 620 will make it very difficult to secure a mortgage. Even if you’re already over 620, you should try to raise your score above 740 for the best interest rate.
Raising a credit score overnight is impossible. However, given a year or two of paying your bills on time, paying off any past-due amounts and lowering your credit utilization rate, you can definitely expect a significant improvement in your score. If you haven’t checked your report already, visit www.annualcreditreport.com for your free report. Be wary of any other “free credit report” sites, as they’re likely to charge you eventually, even if they’re free at first.
Shop for a Mortgage Before Looking for a House
A common mistake many homebuyers make is to immediately set off looking for houses before securing pre-approval for a mortgage. Excited by home-shopping shows, they estimate what they can afford and quickly make appointments to compare homes. After an emotionally draining process of compromising as close to their ideal as possible, they finally fall in love with “the one.” It’s time to make an offer.
However, when they then go looking for a mortgage, they find that the monthly payment for their dream home just isn’t feasible. Worse yet, they may find that they can’t get approved for a large enough amount to make a serious offer.
Instead of going through so much hassle and heartbreak, go shopping for a mortgage before you schedule any appointments with real estate agents. Make sure you’re not just pre-qualified, but pre-approved. Otherwise, you’re still just dealing with an estimated number. This way, you’ll know exactly how much you can afford, and you’ll be able to leave room in your budget for anything unexpected, like replacing an air conditioner. On top of this, you’ll be in a great position for making an offer. Sellers always prefer buyers who are pre-approved for a mortgage.
Shop Around for the Right Mortgage
Even if you’re pre-approved for one loan, it’s definitely worth your time to go looking for a better deal. There are all sorts of different mortgages available, and you can only decide which is right for you if you compare the details. Rates, points, fees, down payments and private mortgage insurance are all terms you should get to know intimately to ensure you’re not paying more than you need to.
Be aware that when you apply for a loan, an inquiry shows up on your credit report. Multiple inquiries can negatively affect your credit score. However, in the case of mortgage applications, if you keep your applications grouped within a short period of time, they will be counted as a single inquiry.
By focusing on your finances before you tour houses, you’ll be in the best possible position to make the perfect selection when the time comes. Good luck finding your new home!