Elation, enthusiasm, and euphoria are three most expensive emotions that can cost first-time home-buyers thousands of dollars.
Make yourself an educated buyer, so you can overrule any emotional interference that comes from shopping for your first home. By keeping some tough ground rules, ten to be exact and by being practical, prudent, and prepared, shopping for a new home can be effortless and fun.
Plan Ahead
Six months to a year is a good starting point before seriously shopping for a home. Get your financial house in order by keeping current bills up-to-date. Devise and adhere to your budget while starting a savings plan for a down payment. Your FICO score is calculated from your credit files, so do your best to get a healthy credit score.
Do Not Buy From The Seller’s Agent Without Your Own Representation
It may be tempting to shop right away for a home on the Internet and attend some open houses, but if you find the most wonderful property, do not assume the seller’s agent will be on your side. Seller’s agents work for the seller, bottom line, and without knowing their reputation you could end up making a costly mistake if you use them. If the agent is a poor negotiator or defaults on any disclosures, the deal could turn into a big mess. Make sure you have your own realtor that will represent your best interests before looking at any properties.
Find A Top-Notch Realtor
Find a realtor with stellar references. You will be responsible for paying the real estate commission so find a realtor with a proven background and references from three or four of their previous clients. When you find your realtor, ask questions, lots of questions about buying your first home. Experienced realtors and financing professionals should be willing to explain the entire home buying process – from viewing homes, to negotiating, to financing, to escrow and closing in detail, and explain it again until you understand it.
Do Not Add To Your Debt Ratio
If you think that once you have a mortgage deal all lined up and the deal is done, think again. Banks and lenders have been known to pull mortgages when they see you have bought a new car or high- priced home furnishings. To banks, such purchases suggest more debt for you and more risk for them. Avoid any big-ticket items until after you’ve signed on the dotted line, even for cash purchases, because the bank will check out your cash reserves when they approve a loan. Many mortgage lenders will often conduct a second credit check right before a house changes hands, and fluctuations in your score can affect the loan’s terms and conditions.
Do Not Change Employment
If you are planning to get a different job before closing, you may appear as a risk to potential lenders. If you have moved on to a better, higher position within your job description that gives you more income, that may not affect your numbers, but remember that lenders consider your job stability in evaluating the loan.
Changing employers creates an uncertainty about your future earnings if your income is based on commissions, as well. There is no track record from which to produce an average. Even if you are making the same commission with a new job, the underwriter cannot be certain that past earnings will accurately reflect future earnings.
If you switch employers that can negatively impact your ability to buy a home especially if a substantial portion of your income comes from bonuses. Even then, lenders like to see that you have a two-year track record of bonuses so they can average them over the last two years in calculating your income.
If you work a little less than full-time, you should not change jobs because lenders will have no way to average your income. The same applies if you switch to self-employment from a salaried job. Lenders rule of thumb is averaging income using a two-year track record, so it is best to keep your current employer.
Keep Credit Balances Down
Utilization measures how much of your credit you are using in relation to your total available credit. If you have one credit card with $500 charged to it and a credit limit of $1,000, then your utilization is 50%. There’s no ideal utilization to shoot for, because as with most things, it depends on everything else on your credit report. But as a general rule, you want to try to keep your utilization on any one card, and across all of your credit cards, below 50% to avoid the risk of hurting your FICO® score.
Do Not Originate Any Inquiries Into Your Credit
There are two different types of credit report inquiries, referred to as “soft” or “hard” in the credit world. A soft credit inquiry occurs whenever a consumer requests his or her own credit card report from a bureau or when a credit report is requested by a current creditor investigating a dispute. The soft credit inquiry is not supposed to have any effect on your credit score, since it was made at the request of the by you or an established creditor, but the number of inquiries will make up ten percent of the criteria for a credit score adjustment.
Keep in mind, though, opening unnecessary accounts can also backfire when you need to make your home purchase and find that your score has dropped causing you to no longer qualify for the best rates. There is no “golden number” of charge cards, but opening cards just to gain a small savings is usually a bad idea.
Do Not Co-Sign Any Loan For Anyone
Co-signing a loan for someone, as far as the credit reporting agencies are concerned, is like incurring brand new debt of your own. Any time you get new credit your score will go down slightly and gradually rise with time with a timely payment history. So, just co-signing, in and of itself has an impact on your credit score. The lender will look at all of your monthly obligations, including the debt you co-signed for someone else, in determining whether to approve your loan application.
Do Not Ignore Pre-Approved Amounts Or Overextend Your Budget
To be pre-approved, your lender will thoroughly evaluate your application, including verifying employment information and your financial state. They will then approve you for a determined loan amount. Having your loan pre-approved makes you more attractive to the seller and gives you a definite advantage when competing with other home-buyers. Develop a budget that truly reflects your lifestyle. Talk to a real estate agent who can give a rundown of your new home expenses and taxes so you can revise a new budget.
Avoid A Risky Loan
Talk to a mortgage broker or a loan officer to receive information on various types of loan products so you can wisely choose one designed for your present situation. However, if you don’t educate yourself on the various products, this increases your chances of selecting a loan that’s too costly.
For example, if you choose an adjustable rate mortgage to receive a lower interest rate early on, but you failed to realize that their rate and mortgage payment can increase in the future. This can put you in a financial pinch. Likewise, you may like to have a 15-year mortgage to pay off the debt faster, but have not considered that you cannot make the higher payments if your income should change.
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