Before Buying a Home, Get Your Financial House in Order
Smart home buyers need to ensure that their financial house is in order. Don’t miss out on a great deal because of poor credit. Many financial advisors encourage home buyers to start their process several months before pounding the pavement by checking their credit report. Know that your credit score affects your ability to borrow money, how much you can borrow and at what interest rate.
Step One: Clean Up Your Credit Report
All consumers are eligible for a free copy of their credit report from each of the three leading agencies annually. Get yours via www.annualcreditreport.com or by calling 1-877-322-8228. When you review your credit report, check for inconsistencies such as accounts you did not open, charges you did not make or delinquencies you did not cause. Contact the credit reporting company and provide written documentation regarding the item in question. The credit reporting company will investigate and respond as appropriate. You also want to contact the creditor and the other two credit reporting companies to make sure their information is up-to-date.
Step Two: Know Your Score
Your credit score plays an integral role in determining the interest rate on a new mortgage, and it’s up to you to monitor it. While all consumers are entitled to a free copy of their credit report from each of the three leading bureaus annually, scores are not free. They are, however, available for a nominal fee via the same agencies.
Step Three: Determine Your Price Range
Start by examining your current income and expenses. Track these items for at least three months to calculate an average monthly budget. Determine how much money is available to spend on housing costs. Estimate additional costs related to homeownership (utilities, association fees, homeowner's insurance, appliances, repairs and yard maintenance). Use mortgage calculators and other tools to assess how much you can borrow, what your down payment should be and what closing costs will be.
Step Four: Make Your Wish List
To avoid falling in love with an impractical house, identify “must have” and “nice to have” home features. Consider the square footage, number of bedrooms and bathrooms, neighborhood, schools, and distance to work. Prioritize your extras so that when you are looking at houses, you will have an easier time evaluating your choices. If you know that you would rather have an updated kitchen than a nice outdoor living space, you will be less likely to be swept away by the beautiful screened-in porch on the house that has only two working burners on its stove.
A house is the largest purchase most people ever make, and it is worth taking extra steps to make wise decisions.