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Getting Ready to
Buy A Home
Buying a
home is a time of enormous possibilities and intense preparation. Doing
some preliminary planning before you begin your home search will make
the entire process more manageable and less overwhelming.
As part
of your initial game plan, you should:
- Fine-tune
your credit rating
- Explore
mortgage pre-qualification and pre-approval
- Become
an educated buyer
- Create
a wish list to help you learn what you need, and what you want - or
don't want - in a new home.
Check
Your Credit Rating
Even
if you're sure you have excellent credit, it's wise to double-check at
the outset. Straightening out any errors or disputed items now will
avoid troublesome holdups down the road when you’re waiting for
mortgage approval. You may see disputed items, in addition to errors
caused by a faulty social security number, a name similar to yours, or a
court ordered judgment you paid off that hasn't been cleared from the
public records. If such items appear, write a letter to the appropriate
credit bureau. Credit bureaus are required to help you straighten things
out in a reasonable time (usually 30 days).
TIP:
Make sure that any outdated derogatory entries are deleted from your
credit file. Adverse credit information is not supposed to be
reported or included on your credit report after seven years (except
bankruptcy information, which can be reported up to ten years).
TIP: Officially cancel inactive
credit cards. If you have an inactive credit card with a $5,000
limit, even though you owe nothing on it, some mortgage lenders will
consider that a potential future debt. Too many inactive credit cards
with significant credit limits could keep you from obtaining a mortgage
loan. Don't just cut up your extra cards; officially cancel them, and do
it now so there will be time for the news to reach the credit bureaus.
TIP: Hold off on making any major
credit card or car purchases while you're waiting to apply for a
mortgage. Monthly payments you're obligated to pay will be counted
against you, and reduce the amount of the mortgage loan you'll be
offered. Even if you've been pre-approved for a mortgage, that approval
is subject to last-minute evaluation of your financial situation, and a
spending spree for appliances, furniture and other goodies intended for
your new home may wreck your chances for buying it.
Pre-qualification
and Pre-approval on a Mortgage
Many real estate brokers will "pre-qualify" you for a mortgage
before you start house hunting. This process includes analyzing your
income, assets and present debt to estimate what you may be able to
afford on a house purchase. Mortgage brokers, or bankers can also
calculate the same sort of informal estimate for you, but more
accurately!
Obtaining
mortgage "pre-approval" is another thing entirely. It means
that you have in hand a lender's written commitment to put together a
loan for you (subject only to the particular house you want to buy
passing the lender's appraisal). Pre-approval makes you
a stronger buyer, welcomed by sellers. With most other purchasers,
sellers must tie the house up on a contract while waiting to see if the
would-be buyer can really obtain financing. The down side is that you
must pay application fees to cover the lender's paperwork in verifying
your employment, income, assets, debts and credit rating. If you later
decide not to use that particular lender, you'd have to start all over
again elsewhere - with no refund. Pre-approval will also speed up the
entire mortgage procedure once you've found the house you want. The only
remaining question will be whether the house will "appraise"
for enough to warrant the loan. (Loan to value)
Become
an Educated Buyer: Research Neighborhoods, and
Visit Open Houses
If you were changing cities, the standard advice used to be to subscribe
to the local newspaper in the new town and start reading local news and
classified ads to get a feeling for different neighborhoods. Although
that’s still a good idea, you can simplify and streamline the
house-hunting process by using the Internet to find a home, Find a
REALTOR that you are comfortable with - one that responds to your
emails, and/or telephone calls. Find a Neighborhood, and Find Resources.
For
local moves, you have the advantage of driving around neighborhoods that
interest you and looking at lawn signs. Particularly on weekends, you
will see "Open House" postings. Don't hesitate to walk in,
even if you're not ready to buy yet. Let the Agent sitting the Open
House know that you are working with another realtor, but just
previewing for an education. It’s OK!
It’s best to be honest. Visiting
open houses is an excellent way to familiarize yourself with the market
and judge various real estate agents you may meet along the way, and it
won't put you under obligation to anyone.
Your
Wish List
Making sure you end up with the right home involves figuring out exactly
what features you need, want and don’t want in a home. Before starting
your search, you should make a "wish list" to decide which
features are absolutely essential, which are nice "extras" if
you happen to find them, and which are completely undesirable. The more
specific you can be about what you’re looking for from the outset, the
more effective your home search will be. Also keep in mind, that in
the end, every home purchase is a compromise.
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