1. Pull your credit report and check your score
Your credit report and corresponding score are your golden tickets to buying a home. They showcase your credit responsibility and worthiness. Your credit score can seriously impact your mortgage rate. The higher your credit score, the lower your interest rate will be. This means you’ll end up owing a lot less money over the life of the loan.
Avoid getting new credit within a year of buying a home since it can cause a temporary dip in your score. The length of your credit history matters, too. The longer your credit history, the more credit-responsible you look.
2. Review your budget
If you’re working on a clean bill of credit health, give your budget a hard assessment. Use the 28-36 rule to see where your money is going. This is when your maximum household expenses shouldn’t exceed 28 percent of your gross monthly income. Your debt, like credit cards and loans, shouldn’t exceed 36 percent.
Your debt-to-income ratio, or DTI, is important to lenders for determining how much home you can afford and if you’re a good candidate to receive a mortgage. You might discover you need to make some adjustments, like spending less on travel and clothing, for example, to make room for a mortgage payment.
3. Get pre-approved
With a stellar credit score and a solid down payment built up, you might feel confident in buying the house of your dreams. But until you get preapproved, that house will stay in your dreams.
Getting prequalified is nice, but it’s not the same thing. A prequalification is only based off information you give a lender. A preapproval is completing a mortgage application that pulls all your financial records.
Lenders base how much money they’re willing to give you based on your entire financial existence: your income, debt, and credit history all pay a crucial role. But it’s also there to show you how much home you can afford. If you know you can only get a $200,000 loan, you won’t waste your time looking at half a million-dollar homes.
It’s important to remember that you don’t need to settle on the first lender you find. Browse through different banks, online lenders, and credit unions to see which ones offer the best terms. Compare interest rates, fees, and the terms for paying back your loan. Consider working with a mortgage broker to help you weed through your options.
4. Get an agent
Whether you’re looking for a home 300 miles away or three, it’s a good idea to find someone who knows the neighborhoods better than you.
A real estate agent is on the hunt for your best interest because they want you to find the right home and buy it. Agents get their commission after a home is sold, so you don’t have to worry about costs up front.
Not all realtors do the same great job. So if you’re on the hunt for a great one, do your research. Look for one with top-notch credentials that has a proven track record. It’s similar to interviewing someone for a job, so talking to a potential agent’s former clients through may help you determine if they’re the right fit for you.
5. Don’t skimp on an inspection
You might think getting a home inspection is unnecessary. After all, you toured the home yourself and you would’ve seen major issues. True, maybe you can spot the big problems, but what about the small ones?
Home inspections go over every single detail of your home, from walls and appliances to the roof and drainage. Getting an inspection is a major part of buying a home because if there is, say, a water leak, you can take this issue back to the seller for negotiation. Either they fix the problem before you buy it or they lower their asking price of the home to accommodate the new cost of fixing the leak.