Three things to do before buying a home

I recently met with a rental client who asked, “What should I do to prepare to buy in the next year?” It’s a great question and of course I love that she’s a planner like me. The best part of my job is sharing my knowledge, especially with first-time buyers.

If you’re currently renting and are thinking of taking the plunge in the next year (or sooner), there a three things you must do before you buy a home to put yourself in the best position. If you wait until you start looking at homes or begin pre-qualification, you may wish you had taken care of things sooner!

Revisit your credit
Many people avoid checking their credit score like they avoid going to the dentist. But just like a dental visit, reviewing your credit will help you catch small problems before larger ones arise, especially with identity theft on the rise. You can start by using a free credit report site like creditkarma.com. Like any credit reporting, you will see an assessment based on:

•    Payment history
•    Age of credit history
•    Number of credit inquiries
•    Credit card debt/limit ratio
I am also happy to recommend a great consultant who can help you assess your credit and help repair if needed. Let me know!

Save
More money means less stress. You’ll need cash for several items before and at your closing: Earnest money (1-5% of purchase price)

  • Inspection ($300-400)
  • Attorney ($600-700)
  • Closing costs (varies)
  • Down payment (3%-20+% of purchase price)

If you can save up enough to put down 20%, you won’t have to pay Private Mortgage Insurance (PMI). PMI is a type of insurance you have to purchase if your loan-to-value ratio is less than 80%. The costs for PMI varies, but is roughly $30-70/month per $100,000 borrowed.

Another benefit to putting down 20% is that it makes you a stronger buyer when submitting an offer. If two people make identical offers and one can put down more money, guess which one the seller is inclined to choose? In addition, putting down more money leaves you with a lower mortgage balance and less interest to pay- a win-win!

Watch mortgage rates
Right now, rates are at a historic low… and that’s great! But do you know what that means to you as a buyer? At a 3.75% interest rate and a roughly $1,400 monthly payment, you can afford a $300,000 home. Once interest rates jump to 4.75%, your buying power decreases by 10%! Now you only qualify for a $270,000 home. That’s a big difference! Stay up to date with what’s happening in the economy; if you can afford to buy sooner, it’s best to jump in while the financial trend is still on your side.