Last week we reported strategies to follow before shopping for your first house. Liz Pulliam Weston with MSN Real Estate suggests the following timeline as an ideal one for someone purchasing their first home and for the most part, we agree with her. This week we will continue our discussion about more immediate strategies.
3 months out
1. Reduce your credit utilization. If you live in a country that implements scoring formulas like FICO in the US, you available credit will be reflected in your credit score. Obviously, less is better. Even without a FICO credit score available, lenders will want to see copies of your statements. A good rule of thumb is to keep your credit card balance below 30% of the amount available.
2. Don’t open or close any new accounts. Avoid taking actions that harm your credit rating such as opening new accounts or closing old ones. Keep up your old, good habits until the mortgage is processed and you are living in your new home.
2 months out
1. Get an idea of the mortgage rate you can expect. This is easy enough done. Most banks post rates for mortgages in their lobby. Or go on-line to www.lendingtree.com. A bank may or may not be the best place to get a mortgage. They will offer the fewest options. A mortgage broker on the other hand will have a wide array of mortgage alternatives available (including your bank’s). Don’t make application yet, and don’t give anyone permission to pull your credit. You’re just shopping the market.
2. Understand the effect of mortgage shopping on your score. Again if you are in a country the uses credit scoring, any time you allow a lender permission to check your credit, a ‘hard inquiry’ dings your score. When you’re ready to be a serious home shopper, that’s the time to be certain about your mortgage.
3. Get your mortgage approved ahead of time. Getting pre-approved is different than pre-qualified. Pre approval requires a ‘hard inquiry’ and the lender issues a letter that states you are pre-approved to obtain a mortgage. In a sense, you now become a cash buyer and you will command a stronger bargaining position with the seller.
4. Consider a mortgage broker. Ask for referrals from friends and relatives. You can also get a referral from the National Association of Mortgage Brokers.
5. Begin researching neighborhoods and look for an agent. Check internet listings, attend open houses and view web sites. Most large real estate companies include useful neighborhood information on their sites. On www.coldwellbanker.com for example, you can search for neighborhoods based on population density, age, income, etc. You can search for school information the same way. A REALTOR™ will provide you with all of the information you need to proceed. Ask for a ‘Buyer’s Estimated Closing Costs’ sheet from the agent. It will be similar to a GFE obtained earlier but now more detailed and specific to the transaction awaiting you.
Once you’ve found a home and your offer is accepted.
1. Shop for a mortgage (again). Just because some lender wrote you a letter of pre approval, doesn’t mean you have to ultimately take out your mortgage with them. A lot may have changed since you were pre-approved so it is wise to check around once again.
2. Arrange for an inspection. You will want to make an inspection a condition of the offer for two reasons: One, to discover hidden defects that if disclosed, might have caused you to bypass this property. Two, you will want to become familiar with your new home by finding out where the fuse boxes are, shut off valves, etc. Unless there are major, unfixable defects, most sellers will agree to fix leaky pipes or faulty switches to complete the deal.
3. Confirm how much money you will need at closing. The lender or your agent will arrange for appraisals, title insurance and other inspections. There will be a charge for these, however but by now thanks to the GFE and your agent you should be getting pretty savvy about the process.
4. Get homeowner’s insurance. The lender will require it but you will want to have it regardless. Ask about umbrella policies and personal liability policies as well. And shop insurance companies—you’ll be glad you did.
Enjoy your new home!