Before you get wrapped up in the excitement of buying a home, you need to prepare for things you may run up against in the mortgage application process. Following the steps below could save you tens of thousands of dollars or even mean the difference in whether you can buy your dream home or not.
1. Do - Pull Your own Credit from all 3 Bureaus and review thoroughly. Be sure and look at any public records like judgments, bankruptcies and tax liens. Sadly, many companies are quick to add negative items to your credit report but are slow to reflect the fact that you have satisfied them.
2. Do - Challenge and have any errors corrected on your report on ALL 3 bureaus. You can do this through the three bureau's websites.
3. Do - Put together a budget to figure out how much house payment you can afford. Be sure and include 1/12th of your annual taxes and property insurance. Also, be sure and consider how you would cope if you had a drop in income such as one spouse loosing a job. Just because a lender or mortgage broker says you qualify for X price home does not mean you should buy a home at this price.
4. Do - Think about your needs and don't get caught up in buying a home just to 'keep up with the Jones'. As a part of this evaluation be sure and consider 1) School systems, 2) Commute time, 3) How quickly the home would sell if you had to sell it quickly, and 4) Any money needed to fix up the home to suit your needs, particularly if you borrow all or nearly all of the purchase price.
5. Don't - Borrow significant money right before you buy a home. This includes cars, credit cards and personal loans. If you just have to buy a car, wait until after you buy the home. The extra debt can cause you to qualify for less home than you would without the debt. I can't tell you how many people that could not qualify for the price home they wanted because of a recent car purchase. Deciding to buy a cheaper car after you bought a new home is far better than the other way around as a car depreciates dramatically and most homes increase in value. Plus you should get a tax deduction on the interest.
6. Don't - Change from being salaried (W2) to being self employed at least a year and in most cases 2 years before trying to get a mortgage to buy a home.
7. Don't - Pay off old judgments or old collections to try to improve your credit score. Often times this will LOWER your scores. If the lender requires you to pay these off or you just want to pay them off, you can do it during or just before or after closing on your home.
Planning ahead when buying a home can make the process much smoother, less stressful and save you a lot of money. Happy house hunting!
