3 Things You Need To Know BEFORE You Shop For A Home
Get Your Credit in Shape
A high FICO credit score can make all the difference with it comes to securing a loan with favorable interest rates for homebuying. Your FICO score is broken down according to the following categories:
- Payment history (bills paid on time): 35%
- Amounts owed (overall debt): 30%
- Length of credit history (the longer the better): 15%
- New credit (recent credit cards, auto loans, etc.): 10%
- Types of credit in use (bank cards, student loans, car loans, etc.): 10%
- FICO scores range from 300 to 850, and of course the higher the better.
The official site where you can get free credit reports from Equifax, Experian and TransUnion is: www.annualcreditreport.com. After reviewing your credit reports, if any errors are found report them immediately. Start the process at least 6 months before you’ll be ready to buy.
Apply For A Pre-Approval BEFORE you Home Shop
A prequalification letter and a preapproval letter are NOT the same thing.
Many borrowers dont understand that getting prequalified for a loan isnt the same thing as getting preapproved for a loan, and the misunderstanding can be a costly one. The initial prequalification step allows borrowers to discuss any goals or needs they may have regarding their mortgage with their lender. Getting preapproved is the next step, and is far more involved as it involves verification of the borrowers credit, employment history, and so on.
Borrowers are well advised to complete bothsteps before they start looking for a home, so that they know in advance how much they can afford.
Buy A Home You Can Afford Comfortably
It happens everyday – homebuyers fall in love with the house of their dream, even if it is beyond their original budget. And if the mortgage is approved, this could lead to trouble. The rule of thumb is that you can buy housing that runs two-and-one half times your annual salary. But maxing out may not be wise. Think about what your comfortable monthly living expense will be and DON’T GO BEYOND IT!