The home-buying process can be daunting, particularly for the first-timer. Liz Pulliam Weston with MSN Real Estate suggests the following timeline as an ideal one for someone purchasing their first home. Of course the steps can be accomplished in far less time, particularly if you employ trusted industry experts for advice.
As soon as possible (Ms. Pulliam Weston suggests one year)…
Obtain a copy of your credit report. In the US, the three major credit bureaus, Equifax, Experian and TransUnion offer free credit reports. You should scan the report for errors: accounts that aren’t yours and other mistakes will negatively impact your credit and may cause you to pay higher interest rates. Errors and mistakes can usually be dealt with and usually without assistance from an attorney. If you are outside the US in a country without a formal credit tracking system contact a local lender and ask them if you have doubts about your ability to finance a home purchase. Lenders can have vastly different opinions about late payments, repossessions and bankruptcies depending largely upon how badly they want to make the loan.
Improve your credit rating. In the US most mortgage lenders use the FICO credit scoring formula. For $50 you can buy your FICO score for all 3 credit reporting agencies at MyFico.com. In the US or not, you can improve your credit standing by avoiding late payments, pay down credit cards and don’t open or close any new accounts while you’re in the market for a mortgage.
Deal with your debt. Eradicate high interest “toxic” loans: credit card balances and pay-day loans because they are indicators you are living beyond your means. Low interest debt such as student loans or auto loans generally won’t present an obstacle.
Save, save, save. You will have more financing options the more money you have to put down. 5% is minimum but 10% is better and if you can demonstrate that you saved this money on your own over a period of time, so much the better. Don’t show up at the mortgage lender’s office flush with a cash infusion from Uncle Bob. That doesn’t show character. But if you can accumulate the down payment over a period of time by avoiding eating out, dropping your cable TV subscription or other, that does.
Put your bills on automatic. Use on-line bill paying and the recurring payment feature. Better yet, consider using automatic debt payments so that the bill is paid directly from your checking account. A single late payment can harm your chances of getting the loan to purchase your dream home.
Next Blog: 6 months out