Buying a New Home in 2017? Five Steps To Take Now | Picket Fence Preview Real Estate | Buy Sell
Forbes, October 25, 2016
| We¹ve asked real estate and mortgage professionals to chime in about what prospective homebuyers should do to ready themselves for buying a home. From organizing your finances to save money ... to finding a mortgage lender, there is plenty to keep you busy! |  |
1. Check your credit score
A credit score is a numerical representation of your credit report. FICO scores range from 300 to 850, and the higher your score, the better. 'Good credit is like gold when obtaining a mortgage,' says Denise Supplee, a Pennsylvania agent. Typically, you¹ll get the best interest rate on a loan if your score is 740 and above.
'A higher credit score should net you a lower mortgage rate,' says Lee Gimpel, co-creator of The Good Credit Game, which specializes in financial education. 'That lower rate, even if it¹s only 1 or 2% lower, can mean saving thousands of dollars per year.' If your credit score falls short, get busy repairing it. Correct any errors that might be on your report, start paying all your bills on time, and get your credit limit raised. Note, though, that you shouldn¹t max out your card each month. It¹s best to use 30% or less of your total available credit.
2. Don't open new credit cards
If you think resisting taking a selfie when you¹re face-to-face with your fave celebrity is a testament to your willpower, that¹s sissy stuff compared with turning down every offer to open a credit card, even if you could save 20% (or more!) on your holiday purchases.
Tempting as saving at checkout can be, opening new credit may hurt your chances of getting a mortgage, or at least of getting the best rate on a loan. 'By opening the account, you have created another line of credit,' says Paul Anastos, president of Mortgage Master, a division of loanDepot, a nonbank lender. 'That credit line, and what is borrowed, can change the application numbers and jeopardize the application.'
What could save you a few dollars now could cost you far more in the long run if your mortgage payments will be higher. And along those same lines, 'Don¹t overspend during the holiday season,' says Dean Sioukas founder of Magilla Loans, an online lending exchange. 'Especially on impulse purchases that can be tempting during the holidays.'
3. Find a mortgage lender
Before you even start looking for a home (and yes, we even mean browsing online listings), look for a mortgage lender to find out if you can afford to buy a home. If you can¹t right now, there¹s no use torturing yourself by finding your dream home that¹s just out of reach. But how do you find a lender? 'If you have a bank you¹ve been with for years, ask them,' says Bridges... Compare [that lender] with two others. Look at what they offer, costs, points, and how long to close.' Once you know how much home you can afford, perform your home search based on your preapproval amount or less.
4. Keep tabs on interest rates
If you hear that interest rates are at historic lows or that interest rates are on the rise, you should not assume that you can get the rock-bottom rate. Not everyone gets the same interest rate on a mortgage loan. It depends on your financial picture and on the lender you choose.
'Everyone knows that home prices are, at least to some extent, negotiable, but we find loans to be the same,' says Warren Ward, CFP with WWA Planning & Investments in Indiana. He advises that homebuyers shop around for the lowest interest rates. Note that closing costs can vary too, so discuss with your mortgage lender ways to keep yours down. 'We saved $150 on the closing fees by selecting the cheapest title company,' says Ward. 'I guess that's not much, but I think most people would bend over to pick up three $50 bills if they were lying on the sidewalk.'
5. Get preapproved
When a lender gives your financials the once-over and preapproves you for a mortgage, you'll be able to show sellers that you really can buy their house. But how do you get preapproved? By preparing a few documents, which you can do several months in advance of the actual purchase. Here's what you need to buy a house:
• Tax returns for the past two years
• W-2 forms for the past two years
• Paycheck stubs from the past few months
• Proof of mortgage or rent payments for the past year
• A list of all your debts, including credit cards, student loans, auto loans, and alimony
• A list of all your assets, including bank statements, auto titles, real estate, and any investment accounts
Paul Anastos also advises not to change jobs, make big purchases, or miss any debt payments as you prepare to get a mortgage.
