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Buying
a home is a time of enormous possibilities and intense preparation.
Doing some preliminary planning before you begin your home search
will make the entire process more manageable and less overwhelming.
As
part of your initial game plan, you should:
- Fine-tune
your credit rating
- Explore
mortgage pre-qualification and pre-approval
- Become
an educated buyer
- Create
a wish list to help you learn what you need, and what you
want - or don't want - in a new home.
Check
Your Credit Rating
Even if you're sure you have excellent credit, it's wise to
double-check at the outset. Straightening out any errors or
disputed items now will avoid troublesome holdups down the road
when you’re waiting for mortgage approval. You may see disputed
items, in addition to errors caused by a faulty social security
number, a name similar to yours, or a court ordered judgment
you paid off that hasn't been cleared from the public records.
If such items appear, write a letter to the appropriate credit
bureau. Credit bureaus are required to help you straighten things
out in a reasonable time (usually 30 days).
TIP:
Make sure that any outdated derogatory entries are deleted
from your credit file. Adverse credit information is not
supposed to be reported or included on your credit report after
seven years (except bankruptcy information, which can be reported
up to ten years).
TIP: Officially cancel inactive credit cards.
If you have an inactive credit card with a $5,000 limit, even
though you owe nothing on it, some mortgage lenders will consider
that a potential future debt. Too many inactive credit cards
with significant credit limits could keep you from obtaining
a mortgage loan. Don't just cut up your extra cards; officially
cancel them, and do it now so there will be time for the news
to reach the credit bureaus.
TIP: Hold off on making any major credit card or car
purchases while you're waiting to apply for a mortgage.
Monthly payments you're obligated to pay will be counted against
you, and reduce the amount of the mortgage loan you'll be offered.
Even if you've been pre-approved for a mortgage, that approval
is subject to last-minute evaluation of your financial situation,
and a spending spree for appliances, furniture and other goodies
intended for your new home may wreck your chances for buying
it.
Pre-qualification
and Pre-approval on a Mortgage
Any reputable real estate broker will "pre-qualify" you for
a mortgage before you start house-hunting. This process includes
analyzing your income, assets and present debt to estimate what
you may be able to afford on a house purchase. Mortgage brokers,
or a lender's own mortgage counselors can also calculate the
same sort of informal estimate for you.
Obtaining
mortgage "pre-approval" is another thing entirely. It means
that you have in hand a lender's written commitment to put together
a loan for you (subject only to the particular house you want
to buy passing the lender's appraisal). Pre-approval makes you
a strong buyer, welcomed by sellers. With most other purchasers,
sellers must tie the house up on a contract while waiting to
see if the would-be buyer can really obtain financing. The down
side is that you must pay application fees to cover the lender's
paperwork in verifying your employment, income, assets, debts
and credit rating. If you later decide not to use that particular
lender, you'd have to start all over again elsewhere - with
no rebate. Pre-approval will also speed up the entire mortgage
procedure once you've found the house you want. The only remaining
question will be whether the house will "appraise" for enough
to warrant the loan.
Become
an Educated Buyer: Research Neighborhoods, Read Ads and Visit
Open Houses
If you were changing cities, the standard advice used to be
to subscribe to the local newspaper in the new town and start
reading local news and classified ads to get a feeling for different
neighborhoods. Although that’s still a good idea, you can simplify
and streamline the house-hunting process by using the Internet
to Find a Home, Find a REALTOR, Find a Neighborhood, and Find
Resources.
For
local moves, you have the advantage of driving around neighborhoods
that interest you and looking at lawn signs. Particularly on
weekends, you will see "Open House" postings. Don't hesitate
to walk in, even if you're not ready to buy yet. Visiting open
houses is an excellent way to familiarize yourself with the
market and judge various real estate agents you may meet along
the way, and it won't put you under obligation to anyone.
Your
Wish List
Making sure you end up with the right home involves figuring
out exactly what features you need, want and don’t want in a
home. Before starting your search, you should make a "wish list"
to decide which features are absolutely essential, which are
nice "extras" if you happen to find them, and which are completely
undesirable. The more specific you can be about what you’re
looking for from the outset, the more effective your home search
will be. Also keep in mind, that in the end, every home purchase
is a compromise.
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