Have you been thinking about purchasing a home for a while now but, haven’t acted on taking the first step? Buying a home can seem daunting and you may have more questions than answers which may be what’s holding you back. It’s true that buying a home may be one of the biggest investments you may make financially, but it doesn’t need to be a scary process. Getting a good understanding of your finances & what to expect with purchasing a home may help you decide if you are ready to take the next step to start the home buying process. Below are some key things to start to look into.
- Credit Report. A very basic, yet important factor in your ability to buy a home is your credit rating. The best interest rates & more flexible loan terms are available to those with the strongest credit scores. You should understand what your credit score is and ensure that the items they are reporting on are correct. There are three major credit reporting agencies you can contact for your credit score: Experian, Equifax, or TransUnion.
- How much home can I afford? This is probably your biggest question and something you’ll want to accurately know the answer to in order to not be disappointed later in your home search. To get the most accurate answer, you’re going to want to have a conversation with a lender. A lender should help evaluate your current financial situation, as well take into account your future plans that may affect how you think about your home purchase & investment.
- Lending Options. Banks are not the only source anymore for obtaining a loan to buy a home, there are plenty of other options and it is suggested you shop around to find a lender.
- Mortgage Bankers loan their own money and then usually sell the loan to recapture their original money plus a small profit.
- Mortgage Loan Brokers are in the business of matching buyers & homeowners with lenders that are likely to finance them. The buyer usually picks up the fee for this service.
- Financial Institutions are commonly known as traditional banks or “prime” lenders.
- Private Lenders usually refers to sellers who are open to owner financing.
- Some Credit Unions do issue mortgages for their members and generally can beat the rate of the bank, or at least offer the same.
- Pre-Approval. Once you narrow down which type of lender can best meet your needs, the next step is to get pre-approved for a loan. This is not the same as pre-qualification. Pre-qualification is an estimate of how much you can afford in a mortgage payment and simply means that the lender has looked at the information and that there is a high probability that the purchaser will qualify for the requested loan. Pre-approval is a firmer commitment on behalf of the mortgage company & is a more formal process including a credit check & employment verification. A seller is likely to view you as a more capable buyer if you are pre-approved which can give you an advantage as a buyer in the marketplace. It is wise to obtain pre-approval at the beginning of the buying process so you know how much home you can afford and risk not qualifying for a home you go under contract with.
- Upfront Fees & Expenses. Most homebuyers are aware that they need money for a down payment, but it doesn’t necessarily need to be 20%. The best way to know how much you need for a down payment is to talk with a lender – you may qualify for less percent down. On top of the down payment, there are more costs that you will need to plan for. Money will need to be allocated for costs associated with the loan, earnest money with your offer, costs for inspections, cost for an appraisal, possibly a new survey or an ILC, and closing costs. Finally, don’t forget about a cushion for things like actually moving and buying items to get settled in your new home.
With these steps taken care of, you may gain the confidence you needed to start searching for your perfect house!
If you are ready to embark on your mission of finding a home in Colorado – I can be with you for every step of the way. The process will not be overwhelming with a REALTOR® you can trust. Please contact me to discuss your real estate goals: