A lot goes into buying a home and it can be a rewarding but very frustrating experience. Here are some tips that you can use to make the experience much less frustrating.
1) Keep An Eye On Credit
If you are preparing for a home loan, you should keep a constant eye on your credit. This should begin at least 6 months prior to starting the process.
Pull your credit report with each bureau and scan it for errors. If you find any, dispute them immediately. Bureaus will have 30 days to investigate, so you need to make disputes well in advance of applying for home loans.
Once you know that everything is accurate, you should also look for areas to improve. If you have had late payments, pay on time from this point on. If you are using more than 10 percent of your credit, pay your cards down.
Continue to monitor your credit using a service like Credit Karma which will notify you of any changes to your account.
2) Save, Save, Save
There is one thing that can really make the home buying process a lot easier, money. Depending on the type of loan you apply for, you could need as much as 20 percent down to qualify.
Sure, you may be able to qualify for a zero percent down loan such as a USDA or VA loan, but money is always nice. It can give you more loan options and that can save you thousands of dollars over the course of your loan.
If your down payment is lacking, take steps to change this. Go through your budget and find areas where you can save and then start taking that money and depositing it into your home savings account.
Keep your home savings separate from any other accounts that you have. Preferably, open a new account at an online savings and then have deposits automatically deposited there on paydays.
3) Avoid Opening New Accounts
Opening a new credit account before applying for a home loan is never a good idea and can have many bad effects on your credit score.
The obvious impact is the affect of an inquiry. True, this can cause your score to drop a few points but that is not the biggest potential damage.
An even bigger impact can come from lowering the average age of your credit. Your length of credit history is an important factor with your score. Open a new account and you lower the average age and you could see a big drop.
In summary, avoid using your credit at all in the months prior to applying for your mortgage.
4) Have Your Documents In Order
If there is one thing that you will experience with a home loan, it is paperwork. You will have a pile of forms to fill out and your bank will request a pile of documents from you. Have them ready.
So what documents should you have. At a minimum, you should have your last two years of tax returns, your last few months of bank statements and your W2’s from your employer. If you are self employed, you will also need a Profit and Loss statement and possibly much more.
In general, try to save as many documents as you can be up to date on your accounting and taxes.
5) Do Your Research
You need to be as prepared as possible before going into the mortgage process. Being prepared means a number of different things.
For starters, you should know about all of the loans available to you. Your broker should be able to educate you but they might not lead you towards a program that could be better for you. Learn about USDA, FHA, VA, 80/10/10 and conventional financing. Being familiar with all of the loan types out there can help you decide not only what is best for you but where you should be shopping for a home.
Another area to do your research is where you intend to shop for a home. Location could change how much you are able to afford and what loan types are available to you. USDA loans, for example, are not available in large cities but are available in many relatively large suburbs.
In addition, do your research on school districts and tax rates. Even if you do not intend to have children, a bad school district will negatively affect your resale value in the future. Property tax rates can also vary wildly between cities, even those right next to each other. Knowing which cities have the best rates could save you hundreds of dollars a month.
Educating yourself about every area of the home buying process will assure that things run smoothly in the future and that you do not waste time.
6) Learn To Be Patient
When the time comes to finally shop for and fianance your home, you need to be very patient. A home loan is a big deal and the whole process is going to take months.
You have to be approved, then shop for your home, make an offer, inspect it and close. All of these things will take time and do not always go smoothly.
If you are going to be shopping for a home soon, expect things to take longer than you think. Do not paint yourself into a corner where you are desperate and have to close quickly. That could cause you to rush and wind up with a home that you do not want or a deal that could have been better.