Renting is great, but it can get exhausting and expensive!
Here are 7.5 really important things to do when you are even THINKING about purchasing a home for the first time. If you are a couple years out yet, even better as some of these things do take time, some work, and some "tenacity"!
- Pay all of your bills on time in the last 12 months or more, if not on time, no more than 1 or 2 - 30 day "lates" in a 12 month period. It is possible to have dinged credit and still get a mortgage, but you may pay a little more in interest! Another thing to consider...if you are having issues just keeping up on your bills, use bill pay services, or even my personal favorite www.mycheckfree.com that might be a good way to help you remember them. One last tip... You can also set yourself reminders about payments you forget about or auto-payments on your calendar, my google calendar is FULL of reminders like that..
- Have at least 3 good "trade" lines of credit - What is a trade line? They can include car loans, credit cards (secured or unsecured) , Gas Cards, Department Store Cards, Cell Phones Plans that use your credit. Many people with no debt in this form are often shocked you really need "debt" to build credit. The credit scoring formula requires that you have some debt and pay it month to month to show that you are responsible.
- Set up a savings account, and make it your initial goal to save at least 5% of your purchase price. It can be done with less of course, but when you start saving you start prioritizing the way you live! The more you can put down on the house, the lower your interest rate and mortgage insurance.
- Be cautious of having unexplained "non-regular" deposits in your checking or savings accounts, as it will look like an informal loan has taken place and most underwriters may need an explanation letter about each one. This arena is called the "sourcing and seasoning" of your funds.
- Analyze a realistic payment zone for you before you meet with a lender. Such as 25% of your gross monthly income, and put some budget numbers on it, so you can know if it works for you in the REAL world, not the on paper world, as some lenders will want to qualify you for the highest possible mortgage, and history has shown the industry that much of the time that the allure of the bigger home can intoxicate, even the most conservative buyers.
- Talk to at least 2 local mortgage lenders as their rates and fees can vary, but tell them what you are doing. It is most likely not a secret, but be direct and that honesty will help you build trust with them. Also, talk to them about down payment assistance programs. There are many cities, and counties that have money to help people JUST like YOU!
- Choose a competent real estate agent, which could certainly be a friend, or relative. Ask people you know and trust who they would hire in your situation..... Referrals are a strong way to help get top notch service! Maybe even research agents on Yelp!
- OK, here is your 1/2 a tip... start driving around the neighborhoods of the homes that you are looking up on Zillow, Trulia, and Realtor.com - Many home buyers look at homes, but forget they BUY into a neigborhood. So, try to "fall in like" with some area's, and learn what area's you don't especially like. It will save you time and heartache.