Buying a home is a bit more complex than my little video short, however the very basic steps are covered. Below is more information you may want to consider before getting started on your journey to purchasing your first home.
1. Bad credit is not always a deal breaker. Don't assume that you can't buy a home just because you have credit challenges. Even if you are not ready now a good lender (who will be in it with you for the long run) will review your credit file and advise you of what to work on in order to qualify for a home in the future. In most cases it will just take a bit of time and patience to address credit challenges and qualify for your new home.
2. Contact a reputable lender. Go to a reputable lender and ask to get pre-qualified to buy a home. A direct lender lends it’s own money, (not to be confused with a broker who will shop around for direct lenders). The trend now is for Realtors to REQUIRE that a pre-approval from a direct lender accompany a buyer’s offer, so you will be ahead of the game if you start with a direct lender.
3. Beware of credit repair schemes. NEVER, EVER pay someone who promises to “fix” your credit overnight! No one can fix credit overnight no matter what they promise you. Even in the case where companies manage to get things removed from your credit in most cases after they’ve taken your money the item with reappear on your credit months later. Your money will be better spent paying off bad debt on your credit report. For tips on what kind of debt to focus on paying off consult your mortgage professional. Also, check out my step-by-step guide to improving credit.
4. Consult your lender before paying off bad debt. Resist the urge to pay off old debts and credit cards without first speaking with your lender. When I bought my first house I spent $7,500 paying off old debt (against the advice of my lender) and it did not improve my credit score by even 1 point! I’m not advocating not paying off your debts. I actually felt very good paying off those old college debts, but if you are doing it just to improve your credit score make sure you know how paying old debt will effect your overall credit rating once the debt is released.
5. Resist the urge to splurge! Don’t buy any big ticket items until your home purchase is complete. Do not go out and buy a car, boat, train, plane or anything other big ticket items if you are purchasing a home with financing. Lender’s look at your debt to income ratio (how much money you make vs. how much you spend every month). If you tip the scales by incurring a big debt during the process this could seriously hurt your chances of qualifying to purchase a home.
6. Large bank deposits must be sourced. Avoid last minute large deposits into your bank accounts. They are a huge red flag for lenders, who have strict guidelines about where the money for your home purchase can come from. Lenders require that every penny in your bank accounts be sourced (accounted for) and verified.
7. Tune out the chatter of well-meaning friends. Do not listen to your friends (unless they are full-time real estate professionals and/or lenders). Friends mean well, but lending guidelines and real estate related programs change daily, so it’s better to consult with a real estate professional for advice about buying, selling and financing real estate.
8. Hire qualified real estate professionals. Try not to hire an agent just because they are a ”friend of a friend” and have a real estate license. Interview at least three Realtors and research their credentials and make sure they have experience with working with first time buyers.
9. Save your money. Save, save, save! The financial commitment is more than just the down payment. There are a lot of expenses when purchasing a new home such as home inspections, appraisals and deposits, and things that you don’t have to buy when renting like (window coverings, lawn care items and appliances).
10. Decide on your top 5! If you are purchase a home with someone else, (a spouse, roommate, family member or significant other) make sure you communicate with each other about what top 5 features are important for your new home. I have seen so many people become at odds during the home buying process because they have not previously discussed what is important for them to have in a home.
For more information about buying a home or for a referral to a top Realtor in your area contact me.