With so much talk going on about how low interest rates are, it makes sense to seriously consider home ownership. If you’re considering purchasing your first house, condo, or townhouse you’ll have to get your ducks in a row.
Duck number one is making sure your credit reports from the “Big Three” credit bureaus are free from errors and are as high as possible. You are allowed to receive a copy of each of your credit reports from Equifax, TransUnion, and Experian once per year for free from www.AnnualCreditReport.com. You will not be able to see your scores unless you pay from them, but your reports will allow you to confirm that the names, addresses, and credit usage history are all correct. If they are not correct you’ll need to contact each bureau via letter, phone, or internet and let them know. They will research the information and correct it for free. If there are some negative things on your credit reports, you’ll need to pay them off or have them removed if the debt is older than seven years and you can prove the date the debt was incurred. Lenders will look at all three scores, and use the middle score, so make sure each score is as strong as possible.
The second duck will be coming up with the down payment. This is the piece that has stopped many a would-be-homeowner in their tracks, but I promise you it’s not as hard as you might think. The key to coming up with the down payment is making the decision that you want to become a homeowner and then make decisions that are in line with that decision. Find opportunities to make small changes that make a big financial difference. For example, pick up a second job and put all the money from that job into a) paying off debt and b) to building your down payment up. Even a $9 an hour job that you work sixteen hours a week will bring in almost $14,000 over two years. Start strategically using coupons. Put all the difference between what you actually spent and what you usually spend in a money market account. Choose not to spend another dollar eating out until you have the money to purchase your own home. Nothing is impossible. What will you do to get what you want?
The third duck is going to be getting pre-approved for a specific loan amount. Don’t confuse being “pre-approved” with being “pre-qualified”. A pre-approval means that a lender has taken a look at your income taxes, paystubs, credit scores, etc. and is willing to loan you a specific amount of money to purchase a dwelling. The lender will provide you with a letter to show the real estate agent because most real estate agents won’t even talk to you if you don’t have a pre-approval letter. A pre-qualification letter means nothing. It’s a letter than says that the lender has not looked at any of your actual financial documents, but they are guessing that they could provide you a loan based on what you’ve told them. Unless the lender has actually looked at your financial documents, they can’t really tell you how much money they would be willing to loan you. Get a pre-approval when you’re serious about purchasing a home.
The fourth duck is going to be finding a real estate agent that you want to work with. This may seem like the easiest step, but for many hopeful homeowners this proves to be the most difficult step. Realize that your real estate agent works for you, so interview as many as it takes to find one that you can work with. This person will be guiding you through the home buying process, so make sure you feel comfortable asking questions.
The last duck is finding your home. Don’t get too caught up in finding your dream house as you probably will move on to another home at some point. Make a list and find a home that has the things you need, once you purchase it you can make it whatever you want. Don’t rush.
It doesn’t matter if you have perfect credit and a huge down payment or not-so-great credit and nothing saved, we’ll go through the same process. Start from where you are. Figure out what you want, make a plan to get it, and then do the work to make it happen. Don’t forget to invite me to your housewarming!
Shay Olivarria is the most dynamic financial education speaker working today and the author of three books on personal finance. Visit her at www.BiggerThanYourBlock.com.
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