So you are ready to buy a home? Again, great!
Before you go house hunting, I suggest you hunt in two other areas first:
Hunting Target #1 – Your Credit
At least nine months before you begin looking for your “dream home” or “upgrade”, (if you can’t move into your dream home right now, your next step should be an upgrade in someway), I suggest you check your credit score with all three credit bureaus.
The reports and credit scores that consumers receive from their banks, credit monitoring services, etc. will be different from what a mortgage bank will pull. What you are checking for is to make sure all the information on the report is accurate. If it is, great! If not, you will need to get it fixed.
You will also want to sit with a credit specialist, to see how you can increase your credit score. If you score is south of 650, you will really want to do this because a bank may qualify you for a mortgage with a sub-650 credit score, but you will pay more money than someone with a higher score. Moving your score up could simply be to pay down some of your debt. Whatever the issue is, handle it to the best of your ability.
Now that you have handled whatever was needed to optimize your credit score, make sure you continue to pay all of your bills on time, do not open up or apply for any new credit lines until you purchase your home.
Hunting Target # 2 – Your Budget
Before you go house hunting, you need to establish your budget for the home you can afford. Here is a quick test to figure out how much home you can afford:
Take your annual income and multiply it by 30% then divide that number by 12. Let’s take a person whose gross income is $65,000, they would multiply it by 30% ($65,000.00 * 30% = $19,500.00). Then divide the $19,500.00 by 12 ($19,500 / 12 = $1,625.00). So this person could typically afford a home up to $214,000.00, depending on their credit score, amount of down payment, and so on.
It is important to know your maximum home price so you don’t waste time on looking at homes that aren’t in your budget.
Once you have these two things in order, it is now time to turn your attention to building your Home Purchase Team—realtor, mortgage person, home inspector / engineer and real estate attorney. Because this is where you are going to live for the foreseeable future, don’t try to do this alone. Make sure you build a team that can work with you and protect you against making a purchase you may regret.
My next article will discuss the initial financing of your new home.
Read part 1 here