The process of buying a home can be complex and lengthy, but here are some general steps that can guide you through the process:
Step 1: Check Your Credit Report and Score
Checking your credit score is an important step when buying a house, as it can affect your ability to obtain a mortgage loan and the interest rate you’ll be offered. Your credit score is a numerical representation of your creditworthiness, ranging from 300 to 850. The higher your score, the better your credit and the more likely you are to be approved for a mortgage loan with favorable terms. Here are the steps to check your credit score when buying a house:
- Request your credit report: You can obtain a free copy of your credit report once a year from each of the three major credit bureaus (Equifax, Experian, and TransUnion) at AnnualCreditReport.com. Review your credit report for errors or inaccuracies that may negatively impact your credit score.
- Check your credit score: You can check your credit score for free through various credit monitoring services, such as Credit Karma, Credit Sesame, or your credit card company. Some mortgage lenders may also offer free credit score checks to pre-approved applicants.
- Take steps to improve your credit score: If your credit score is lower than you’d like, take steps to improve it by paying bills on time, reducing credit card balances, disputing errors on your credit report, and avoiding new credit inquiries.
Keep in mind that checking your credit score too frequently can lower your score, so it’s best to only check it when necessary, such as when preparing to apply for a mortgage loan.
Step 2: Determine Your Budget
Before you start looking for a home, you should determine how much you can afford to spend. This will depend on your income, expenses, debt, and credit score.
- Review your current finances: Look at your current income, expenses, and debts to determine how much money you can afford to put toward a mortgage payment each month. Be sure to factor in other expenses such as property taxes, homeowner’s insurance, and maintenance costs.
- Calculate your debt-to-income ratio: Lenders typically look at your debt-to-income ratio (DTI) when considering your eligibility for a mortgage loan. This is the percentage of your monthly income that goes towards debt payments, including credit cards, car loans, and other loans. Ideally, your DTI should be below 43%.
- Get pre-approved for a mortgage: You can get pre-approved for a mortgage loan from a lender, which will give you an idea of how much you can afford to spend on a house. The lender will consider your income, debt, and credit score to determine the amount you qualify for.
- Determine your down payment: The amount of your down payment will also impact your budget for a house. Typically, a down payment of at least 20% of the purchase price is recommended to avoid private mortgage insurance (PMI) and reduce your monthly mortgage payments.
- Consider other expenses: In addition to your mortgage payment, you’ll need to factor in other expenses such as closing costs, moving expenses, and repairs or renovations to the house.
Step 3: Find the Right Lender and Real Estate Agent
A good real estate agent and lender can help you navigate the home-buying process, find homes that meet your criteria, and negotiate on your behalf. Here’s how to find both:
- Do your research: Start by doing online research on different lenders and mortgage brokers. Look at their reputation, experience, and reviews from other homebuyers.
- Get referrals: Ask friends, family members, and colleagues who have recently bought a home for recommendations.
- Check with your bank: Check with your existing financial institution to see if they offer mortgage loans or can refer you to a reputable lender.
- Interview potential agents: Set up interviews with potential agents to discuss your needs and ensure they have experience in your preferred location and price range.
Step 4: Get Pre-Approved for a Loan
Once you have an idea of your budget, you should get pre-approved for a mortgage. This will give you a better idea of how much you can afford to spend and will also make you a more attractive buyer to sellers.
Gather your financial documents. Lenders will require financial documents, such as W-2 forms, tax returns, and bank statements, to verify your income, assets, and debts.
You can apply for pre-approval online or in-person with your chosen lender. You’ll need to provide your financial documents and other personal information, such as your social security number and employment history.
Remember, pre-approval does not guarantee that you will be approved for a mortgage loan when you find a house to purchase. It is important to continue to make payments on time and keep your financial situation stable until the loan is closed.
Step 5: Make an Offer on the Home
When you find a home you like, you can make an offer to the seller. Your real estate agent can help you with this process and negotiate on your behalf.
Step 6: Find the Right Loan Program for Your Situation
There are a variety of home loans available, some of which may offer specific advantages for you. The Choice Home Loans team of experienced home lenders specializes in everything from First Time Home and Construction to VA, FHA and Home Equity Lines of Credit. Through our versatile home loan options, we will find the loan that is best for you.
Step 7: Close on Your Home and Move In!
Finally, you can move into your new home! This may involve hiring movers, transferring utilities, and getting settled in your new space.
Through our versatile home loan options, Choice can help you capture the pride of a new home. Our team of experienced home lenders specializes in everything from pre-qualification to your final payment. We’re here for you every step of the way.Talk to a home loan expert!