It makes great sense, buying a home can be much easier on the wallet than renting. Plus the freedoms of home ownership allow you to customize your home inside and out. The real estate industry itself is a little behind the times with timing when we want what we want and now. Tired of living with neighbors on the other side of the wall? It does take a little time and patience, but if the correct steps are made, it can happen sooner than you think.
For generations, people have been put off by real estate agents asking them about loan prequalification. I would have to say as an agent in my 11th year, I "get" that. And yes, in come cases there are agents who have been in and out of the real estate market who have a take on it that potential buyers who are not qualified are a waste of their time. But, in reality, this question is a logical one for agents who care about their clients.
Finding and making a home purchase, no matter how much we want to deny it, is an emotional decision. Your home is the place where all of your treasured things are, where all of the people and things you love are. No matter who you are, going home is something genuinely thought of as a place of comfort.
With the process being an emotional one, the last thing I want to do is disappoint a home buyer. Without the first step in finances being addressed first, it is like shopping for anything with no money. You don't go unprepared to buy food, clothing, furniture, electronics, or cars. Why would you go unprepared to find and buy a home? Which in many cases you do maybe 2-3 times in your life and is historically your biggest monthly bill.
So the very first thing to do is seek out and find a good mortgage loan, not hit the web or open houses. Yes, this process is many times not the most enjoyable part. But it is proven that potential home buyers with a solid credit history and prequalification are more likely to win the best properties that come on to the market. You need to be in the know as far as what home prices truly translate to for monthly payments. You may be pleasantly surprised on what you can afford.
To get there, get your credit report in order. There may be things on that report you were not aware of. Mistakes, unreported payoffs, old closed accounts still showing open, unresolved collections. Life is busy. Most people do not even open mail and sometimes miss email. The last thing on our list of daily priorities seems to be monitoring credit. And that is ok, until you want a mortgage loan and have decided to make a move.
To Experian, TransUnion and Equifax, whether you like it or not, you are a number, so am I. Your FICO scores are very important to lenders as well as credit history. Keeping that score well above 640 is important. The higher the score, the better. A late payment, especially 60 days or more, a credit card that lowered your limit to show you are maxed out, an old medical bill, a glitch with a car loan, and things like this can all negatively effect your score. And more than you think. Unless you have 100% of the funds you need to buy a home saved in the bank, these scores will affect you. Even with a large downpayment.
A co-signer is no longer an option. After the real estate market crash, banks want to see those folks as "co-owners". That means a lot more to relatives or friends willing to help with a loan. They are actually responsible if you default for even the most unexpected reason like illness or job loss. Even though those people may love and have all the faith in the world in you, they will likely think twice about signing up to co-own a property they are not living in. Put yourself in their shoes, you most certainly would think hard on paying someone else bills and having your credit checked because of something they want to do.
Save up some money. It can be tough to do. The old term "pay yourself first" applies here. You may make some sacrifices in order to save money and not buy the latest and greatest video game, computer, tablet, phone, outfit, shoes or hold off on trading that car or downsize a car payment by leasing or buying something less expensive. It's tough to budget in this day and age when there are so many things in front of us we want NOW. Pay off, downsize and resist what you can and make an effort to save. The bank will want to see a few months payment in your bank and you may want to put some money down.
You don't need 20% down to buy a home. You just don't. FHA offers 3.5% down programs, there are 5% down conventional programs available and even $0 down in some areas. All with fixed 15 or 30 year rates. Yes there is some minimal PMI involved with monthly payments. But if that included with principal, property taxes (which as of now are still deductible in tax returns) and low interest (still just below 5%) all equal a payment around or just lower than your current rent (and maybe even less depending on your rent), why would you not consider it?
Would you rather pay an unpredictable landlord high rent that could go up next year in a place where you never know who is just on the other side of the wall? In a place where you can't paint or remodel, have limits on pets, have no or a minimal yard, and hard parking when you just want to entertain a few friends? Where people are crammed in like sardines? Is this where you picture your forever lifestyle? Renting from a corporation or a landlord who delays when you have something needing repaired? Where you are just another tenant.
Start with your local bank or ask an agent who they recommend for mortgage loans who is doing a great job TODAY. Once you achieve your prequalification, find your home and get in contract, do not go and spend on items and open accounts to dress it up. Wait to purchase anything unnecessary until after you sign and close on your home. Lenders will check and recheck your credit report and bank balances while you are in contract 30-60 days. If relatives or friends give you a large cash gift to help, make sure they write and sign a letter that they are doing that. Your finances are under a microscope during this time. Keep good records and get any documentation the bank asks you for promptly, even if you feel you have given it to them already. Underwriting is likely the hardest and most stressful part of the process.
There is initial pain while getting credit and savings in order. Only you can decide if it is worth the change. It takes commitment to set a goal and follow through to be the owner of your own home. The more prepared you are before ever looking, the more likely you are to achieve your goal in the time you have set. Think you've missed your dream home because you put the cart ahead of the horse? There will be another come up for sale. Don't get "paralysis by analysis". In good time your right home will be ready and waiting for you. Relax and take your goals one step at a time. But be prepared with your credit so that you are a strong buyer in a fast market!
Vicki Workman is certified as an ABR, CRS, E-Pro and GRI, serving central Ohio since 2003, the leader of the Vicki Workman Team of Keller Williams Consultants Realty with offices in Marysville and Dublin, Ohio. Visit her website at vickiworkmanteam.com and get access to her convenient mobile app for your search. You can contact her at 614-440-5174 via cell or text, or via email at email@example.com.