Buying a house? Here are 8 things you should know

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Thinking about purchasing a house?

This can be an exhilarating moment! It's also likely to involve the largest sum of money you'll ever spend in one go.

The positive aspect is there are measures you can implement to set yourself up for successful homeownership. Here are a couple of tips I often share with potential homebuyers:

Opt for a complimentary Financial Evaluation

Even if buying a home is still a year or two away, it's never too soon to start strategizing. Now is a good time to opt for a complimentary Financial Evaluation.

An expert will sit down with you to assess your overall financial situation. For aspiring homeowners, this might involve assisting you in enhancing your financial health by clearing debts, enhancing your credit score, and setting clear financial objectives to prepare for homeownership.

Next, get a free Mortgage Makeover

Enhance your readiness for homeownership by requesting a complimentary Mortgage Makeover.

During this process, you'll explore numerous grant and loan opportunities available to homebuyers, gain insights into each phase of the homebuying journey, and receive guidance on what actions to take—and avoid—along the way.

Furthermore, you'll gain clarity on what an attainable down payment would entail for you. The down payment represents the portion of your home's purchase price that you pay upfront at the loan closing. The amount you put down depends on the price of your home and the terms of your loan.

Many people assume that they must have 20% of the purchase price saved to buy a house. However, in reality, different loan programs have varying down payment requirements, typically ranging from 3% to 20%.

This underscores the importance of a Mortgage Makeover—it evaluates your individual circumstances and equips you to make informed decisions about purchasing a home that aligns with your needs.

Know the cost of homeownership

Have a clear understanding of the costs associated with homeownership, which include:

  • Principal
  • Interest
  • Real estate taxes
  • Homeowner’s insurance
  • Private Mortgage Insurance (if your down payment is less than 20%)
  • Utilities

Not only that, but make sure it still fits within your overall budget, which includes auto loans and insurance, groceries and other bills and expenses.

Develop a savings plan

Once you've established a realistic purchase price, you can start saving for your down payment.

Several avenues are available to help put your savings on auto-pilot, utilizing direct deposit or automatic transfers.

Get pre-approved

When you get pre-approved for a home loan, it lets you know how much you can borrow based on your income and existing debt. It also lets sellers know you’re a serious buyer who can comfortably make an offer without having to rush to secure financing.

Pay your bills on time

Once you've obtained pre-approval for a home loan, it becomes crucial to ensure timely payment of your bills. This is because your credit score can still fluctuate between the pre-approval stage and the signing of your home loan documents. Even a single 30-day late payment on a loan or credit card could significantly impact your credit score and potentially disqualify your loan approval.

Additionally, it's essential to steer clear of overdrafts, which occur when there are insufficient funds in your checking account to cover a purchase or check payment. Especially during this period, overdrafts indicate difficulty in managing your finances and could consequently pose a risk factor for your home loan application.

Keep your lender in the loop

Your pre-approval is based on your current job history, income and total financial picture. So, it’s important to first discuss any major financial changes with your lender.

That includes:

New job opportunity, even if it’s an increase in pay
Marital status
Family size
All of these can impact whether you still qualify for your loan.

Give your credit a break

The process of buying a home is undoubtedly hectic. However, it's an opportune moment to ease up on your credit activities. This is crucial because your credit score influences factors such as the interest rate you'll be charged.

During consultations with potential homebuyers, I often emphasize the elements that impact credit scores—both positively and negatively.

One common error I encounter is individuals closing multiple credit cards in an effort to improve their score. Unfortunately, this often has the opposite effect since closing revolving credit accounts can affect your available credit, credit history, and payment track record.

Another mistake to avoid is making significant purchases, such as furniture, for your new home without consulting your lender first. It's important to remember that even with an accepted offer, your credit score can still fluctuate during this period.

Even if you're presented with a 0% financing offer, it's essential to consult with your lender beforehand. Any additional monthly payment can affect your debt-to-income ratio, which represents the percentage of your gross income allocated to debt payments. The permissible debt-to-income ratio varies for each borrower and is influenced by their credit score.

Lastly, it's crucial to continue managing and paying off your debts or keeping them under control to ensure you're in the best possible financial position when your homeownership becomes official.

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