Buying a house can be quite intimidating, even if you’ve done it before. So if you’re looking to purchase a home in the near future, don’t get discouraged. We are here to help! You probably have a lot of questions as expected. We’ve compiled a list of the first 5 steps to take to prepare to purchase a home. It’s important that you start and complete each step at your own pace. Let’s get started!
1. Start Saving Money
The first step you can take to prepare to purchase a home is to immediately start saving money. The earlier you start saving, the better! You know your finances more than anybody. Figure out a monthly amount that you can start tucking away. It’s best to have a dedicated savings or checking account, one separate from your main account that way you aren’t tempted to spend your house savings. You don’t have to save a large amount each month to make this happen, even saving just $50-$100/month will make a difference. This is why it’s important to start saving as early as you can.
The money you save will go towards a Due Diligence Deposit and possibly a Down Payment on your home loan, depending on your lender and type of mortgage. If there’s multiple offers, you need a strong Due Diligence Deposit, a few hundred dollars is not going to cut it. That seller wants to know how serious you are and a substantial deposit will let them know you mean business. The Due Diligence Deposit is nonrefundable and allows you, the buyer to conduct inspections, appraisals, and surveys. Prior the end of the Due Diligence period, you have the option to terminate the contract under any circumstances. When you get to Step 4, your Mortgage Officer will let you know about any Down Payment that is required for your loan – so it’s good to have some money stashed away for this as well.
2. Pay Off Debt/Prepare Your Credit
So you’ve started saving money and you’re ready for Step 2! Now we can discuss your credit and where it needs to be. Just like with any loan application, the higher your credit score the better off you’ll be in terms of approval and a good interest rate. But even without the perfect score, you can still buy a house! Depending on the mortgage, you can have as low as a 580 score and may still be able to get approved.
But let’s not aim for the minimum, with enough preparation you can get your score where you’ll be more competitive in the mortgage approval stage. Here are a few steps to get your score up:
- Pay Off Debt – this is one of the largest factors in your credit score and it will also help you in your mortgage pre-approval stage. The less debt you have, the lower you debt-to-income ratio is. With less debt, you will qualify for a higher home value.
- No New Inquiries – this one is pretty easy. Don’t apply for any new loans, credit cards or installment plans. NONE! This is even more important once you’re in the pre-approval stage, as any new inquiries or accounts could jeopardize your pre-approval status.
- Pay on Time – this is another big factor that determines your credit score. Be sure to always pay your accounts on time. If you have any delinquent accounts you’ll need to pay those off as well.
- Keep Older Accounts Open – this is another easy one for you. While paying off debt is good, try not to close out any accounts in which you have a credit line. The more credit available the better, plus the older age of each account helps your credit score.
3. Figure Out Your Ideal Location
This will either be your easiest step or one of your most complicated ones. Where do you want to live? After starting Steps 1 & 2 you can go ahead and start thinking about the location. If you have a spouse, this is something you’ll want to discuss with them so you guys can figure out what will be best for your family. The first thing to decide is what county you want to be a resident of, then you can narrow it down by city or town. Here are a few things to consider:
- School Districts
- Commute to Work
- Property Taxes
4. Speak to a Mortgage Officer for Pre-Approval
You’ve got your money saved up, your debt is paid down and you even figured out where you want to live, awesome work! Now it’s time to get down to business. Reach out to your bank or a preferred mortgage officer to get your loan paperwork started. If you need some recommendations on how to get this started or who to use, give Laura a call 919-210-3541.
Tips for the pre-approval process: you’ll need to know your household income and a ball-park estimate of what price range you’ll be requesting. Be prepared to provide bank statements, W-2’s and recent tax filings.
5. Leave the rest to Laura!
Once you have that pre-approval letter the fun stuff begins! Give the Laura Yarbrough Real Estate Team a call so we can start helping you find the perfect home! Call 919-210-3541