Planning and Preparation For Your Home Purchase
Unlike other online shopping, it involves more than adding to your cart and cashing out with Paypal ... And the highest bidder does not always win!
Quite often, the strongest offer on a home, is not the highest offer, and the discerning seller knows this. A strong offer is one in which an educated buyer has prepared a prudent offer, confident of their financial position because it is merited with a lending statement of approval.
You are about to embark on possibly the biggest financial voyage of your life. The process can be intimidating and daunting. You can pace yourself and control the process with these simple steps of planned preparation:
- Know Your Credit Score. Did you know that the three credit bureaus, Equifax, Experian, and TransUnion are each required to give you a free credit report once a year. By checking your score long before you’re ready to make an offer you’ll be afforded time to correct any errors you may discover in your credit reporting. A study by the Federal Trade Commission found that one in four Americans found mistakes and that 5% of those mistakes could have lead to higher loan rates; errors worth omitting.
- Determine Your Affordability. Lenders will consider your debt-to-income ratio. The debt considered includes a future mortgage and other debts such as auto loans, student loan, or revolving credit cards. They want to see a total debt load no more than 43% of your gross monthly income; the lower the better, since this helps determine your rate. You can find debt-to-income calculators on the web. Once you’ve determined your percentage, then you will have a better idea of the mortgage amount you can afford. However, you should ask yourself if how much you can afford is the same as how much you want to afford. You don’t want to stretch yourself so thin that when a rainy day comes you will find yourself in a compromising situation.
- Plan For Your Down Payment. Ideally a 20% down payment is keen; your loan costs will be lower, and you’ll get a better interest rate. If not feasible for every buyer, lenders will add a property mortgage insurance premium on top of the mortgage premium to protect their investment should the buyer default on their loan; typically between 0.5% to 1% of the entire loan amount on an annual basis. If you are struggling for a down payment, there may be programs that can help. FHA offers loans with only a 3.5% down payment, but they will also require a mortgage insurance premium. Since money does not grow on trees, it is wise to begin saving as soon as possible for a down payment. Banks like “seasoned” money; consistent fund balances in your account 60 to 90 days before your loan application. It is worth celebrating that financial gifts and bonuses received close to the time you are buying can count towards your down payment!
- Begin to Gather Paperwork. Begin now to collect the documentation banks will require accompanied with their loan application in consideration of your loan request. This list may include:
- W-2 forms from the last 2 or 3 years, or Business tax returns if you are self-employed
- Personal tax returns from the past 2 or 3 years
- Most recent pay stubs
- Credit card statements, loan statements, and bank statements
- List your personal addresses as far back as 7 years
- Have any brokerage account statements for the most recent 2 to 4 months
- 401K statements or retirement fund statements
Start Shopping! Now prepared, you are a strong and savvy buyer. You know what you want and with the help of a Buyer’s Agent you are prepared to go and get it!
Looking for a new home? Use our Quick Search or Map Search to browse an up-to-date database list of all available properties in the area, or use our Dream Home Finder form and one of our San Luis Obispo Real Estate professionals will conduct a personalized search for you.