10 Things You Must Do Before Buying
by Brandon Cornett
Buying a home is often the largest
personal finance transaction a person
makes in his or her life. So it's
critical that you make the right
preparations and do the proper research.
Regardless of unique situations and
special circumstances, there are
ten things you must do before buying
1. Study the home buying process.
This will allow you to make better decisions and act confidently. Home buying
lingo is a big part of this, so be sure to read through a few home-buying
glossaries before you get into the thick of things.
2. Obtain your credit report.
Get a copy of your credit report and review it for errors. You can get copies
from all three credit bureaus at once by visiting www.AnnualCreditReport.com.
Mortgage lenders will review your credit with a fine-toothed comb, so you
should do the same ... before they review it.
3. Fix credit errors quickly.
If you find an error on your credit report, go to the company's website where
the report came from (TransUnion, Equifax or Experian) to contest it. It
can take time to clean up an erroneous credit report, so get started as soon
as you spot the error.
4. Check your debt-to-income
Mortgage lenders like to see a borrower's debt at (or below) 20% of net monthly
income. If your debt exceeds 20% of your net monthly income, try to pay it
down for applying for a mortgage loan. You'll have an easier qualification
process and will likely qualify for a better rate.
5. Determine your budget.
Use an online mortgage calculator to get an idea of how much you can afford
to pay each month, and what that equates to in terms of a home price. This
will give you a budget to work from, which will help you weed out the homes
that are beyond your comfort zone.
6. Start saving your cash.
This is one of the best things you can do before starting the home buying process,
for a couple of reasons. First of all, mortgage lenders like to see that
you have some cash reserves on hand. Secondly, you'll need cash reserves
for any unexpected fees or costs that might arise (which is common).
7. Get pre-approved for a loan.
During pre-approval, a mortgage lender will review your credit, finances, debt,
etc. and conditionally qualify you for a certain amount of mortgage. Sellers
will take you more seriously if you have a pre-approval letter, and the process
also helps identify any problems with your credit or other qualifying factors.
8. Avoid new lines of credit.
Try to keep your financial situation as "stable" and favorable as possible.
It's a good idea to pay down some debt (see item #4 above) and to save up some
cash. But the worst thing you can do is take out a new loan / line of credit.
At best, this could make the qualification process take longer. At worst, it
could tip the debt scales into the "greater than 20%" zone, which will make
it harder to get a loan.
9. Validate the asking price.
It's called an "asking price" for a good reason. No asking price is set in
stone, and everything in real estate negotiable. So don't accept an asking
price as being reasonable until you validate it through careful research. Compare
the home / price to recent sales in the area. Your real estate agent can provide
a comparative market analysis (CMA) to help you with this step.
10. Get a home inspection.
It is never -- I repeat, never -- wise to skip the home inspection. A house
is a sizable investment, and the last thing you want is to find a bunch of
things wrong with it after you've taken ownership. Home inspections are very
affordable, and you cannot put a price on the peace of mind you'll have as
a result of your inspection.
About the Author: Brandon
Cornett publishes a website full
refinance tips as well as several
other websites for consumers. Visit
the author online at http://www.mortgage-refinance-advice.com/blog/