Things to Consider Before You Start Your Search
RUN YOUR CREDIT REPORT
- If your credit score is low, look carefully for any errors and fix them.
- Pay down any credit cards which are maxed-out.
- Be sure to improve your credit history by staying current on all bills for at least 12-18 months prior to applying for a loan.
EVALUATE YOUR DEBT-TO-INCOME (DTI) RATIO - Note: as a rule, your mortgage payment plus the monthly payments including car loans, student loans, credit card balances, and any other debt that will take more than 10 months to pay off, should add up to no more than 38% of your gross monthly income.
- If DTI is too high, consider paying off some debts or adding another income to the mix (perhaps a spouse's income).
- Figure out how much you feel comfortable spending on a home.
PRE-QUALIFICATION - Meet with a mortgage lender. The lender will be able to advise you how much the bank (mortgage company) feels you are able to afford.
PRE-APPROVAL - While knowing how much you can afford is the first step, sellers will be more receptive to potential buyers who have been pre-approved. You'll also avoid being disappointed when looking at homes that are out of your price range.
- You will actually apply for a mortgage and receive a committment in writing from your lender.
- Costs for pre-approval are generally minimal and lenders will generally allow you to pay them when you close the loan.
LIST YOUR NEEDS AND WANTS - Make two lists.
- First list should include items you MUST have in your new home (i.e. the number of bedrooms, one-story home if accessibility is a factor, etc). I MUST have ________________, __________________ and __________________ in the home I decide to purchase.
- Second list should include your wishes. These are features you would like to have (second bath, pool, finished lower level) but are not necessary. Realistically especially with first-time buyers, you probably will not get everything on your wish list, but it helps to keep you on track for what you are looking for.
BE OBJECTIVE - Refer back to your lists. Does this home meet your needs? This is one of the largest purchases you will make in your life, take your time!