Think You Are Ready To Buy A Home: 3 Things To Do Before Contacting A Real Estate Agent
Posted on: 11 July 2017
A home is an incredibly large investment, so buying a house should be taken seriously. Unfortunately, many people search real estate listings, go to open houses, and schedule showings to look at homes they are not actually ready to buy. You may see a home you believe you can afford in an area that works well for your job and family's needs, but you may not have the tools and finances to take this huge step towards home ownership. Without proper planning and research, buying a home can wreak havoc on your physical, emotional, and financial well-being. Before you contact an agent, use this guide to prepare for your home purchase.
Check Your Credit
Looking at a home you cannot buy wastes the time of the seller and the agent, and it can also cause a great deal of emotional distress for you and your family. Before you schedule a time to look at a house, make sure your credit is good enough for a mortgage approval.
From conventional 30-year loans with fixed interest rates to government-backed FHA or VA loans, lenders offer a variety of mortgage options. The minimum credit score for most conventional loans is 650, while an approval for a government-backed mortgage can be accomplished with a score of 580 or higher.
Of course, it is important to note that other factors, such as your income and total debt, will also be accounted for during the approval process.
If you have high balances on credit cards, consider paying them down as much as possible. This will improve your debt ratio, which will increase your credit score. Pay off any collections that are lingering on your credit report, as well. Even a small collection can greatly affect your credit score.
Save Money
If you do not have any money saved, you should not be looking at houses to buy. A savings account is beneficial for many reasons. Not only will your savings help pay your bills if you suffer from a medical emergency or lose your job, but money will also be needed as a down payment for your house.
Traditionally, 20 percent of the home's purchase price will be required as a down payment. If you are planning to buy a $300,000 home, most lenders will require a down payment of $60,000 plus any closing costs.
Some lenders are now offering mortgages with down payments as low as 3.5 percent. These are great programs for buyers who do not have a large down payment saved, but the higher interest rates can become costly over time.
Get Preapproved
Once you have a high-enough credit score and money put away for your down payment, you can contact a lender to get preapproved for your mortgage. After ordering a credit report and reviewing your income statements and tax returns, lenders will be able to determine how much of a house you can afford to buy.
Lenders do base this preapproval amount on your current income, debt payments, and basic living expenses, such as utility bills and insurance. Lenders do NOT factor in other expenses, such as groceries, entertainment, and travel. Due to this, you must design your own realistic budget that includes these expenses. Then, base the amount of your home purchase around this budget to avoid future financial strain.
Since many buyers look at homes they actually cannot afford, most real estate agents will not even consider showing a property without a preapproval letter from a lender.
Contacting a realtor to schedule a showing should never be your first step in the home-buying process. By checking and restoring credit, saving money, and consulting a lender for a preapproval, you can begin shopping for a home. To learn more about buying a home, contact a real estate agency like Century 21 New Millenium Inc.
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