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So you’ve decided to buy a new home? Preparing to buy should be easy with this checklist and the help of your Realtor.
Improve your credit score
Your credit score will have a huge impact on what type of property you can buy, and at what price. It is first recommended to check your credit rating with an experienced lender to determine what you can afford. The lender will research your credit ratings from the three credit reporting agencies Equifax, Experian and TransUnion.
Decide on a budget
As a rule of thumb when preparing to buy, you should look for homes that cost no more than 3 times your annual household income. You should pay down your debts as much as possible and build your savings account to have at least 20% of your down payment. There are some loan programs that require less money down, so be sure to ask your lender if you qualify for these types of loans.
Get a pre-approval
A pre-approval from a lender is a tentative commitment that you’ll receive when you show the lender documentation of your income assets and debts. A pre-qualification letter may be obtained by verbally telling the lender your financial “snapshot”. Many real estate contracts prefer to accompany a pre-qualification letter from a lender.
Be sure to review our Financing Options guide to help through this process. We also have several trusted lenders who we recommend.
Organize your papers
When preparing to buy, create a file that contains all your important financial documents like:
- Financial statements
- Bank accounts
- Credit cards
- Auto loans
- Recent pay stubs
- Tax returns for two years
- Copies of leases for investment properties
- 401K statements, life insurance, stocks, bonds, and mutual account information.
Decide on a loan type
Work closely with your lender to determine the right loan type, rates, and term for your plans. There are many government-backed loan options that require less money down. If interest rates are low, consider borrowing money while the cost to repay is low.
Shop for a home
Once you have your finances lined up, take as much time as you need to find the right home. Work with a Realtor who is experienced in the area you would like to purchase, as well as negotiating contracts. Negotiate a fair offer based on comparable homes in the same neighborhood.
Do not make last minute mistakes
Now is not a good time to make sudden career changes or large purchases. You want to approach your property purchase from a position of financial stability. Your lender will recheck you employment status and credit profile again just before closing.
- Quit your job
- Buy a new car, co-sign, or refinance
- Apply for a credit card
- WAIT to go shopping until after you close
Choose a great lender
Finding the right lender when preparing to buy can make such a difference in your purchase. They will work with your agent to guide you smoothly through the loan approval. They should be knowledgeable, experienced, responsive, and willing to take the time to answer questions. Many lenders can “shop” rates with big banks without pulling your credit multiple times.
We have several trusted lenders who we recommend, please call us to find the right one for you.
Close the sale
To finish the close you will sign all of the loan documents required to complete the purchase. It typically takes a couple of days for your loan to be funded after the disclosures are signed. Your Realtor should be with you at the closing table to guide you through the closing process and documents, along with the title or closing coordinator.