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When anyone decides to buy a new home, they often find themselves on a little adventure that involves a lot of work. Still, the anticipation of new beginnings makes setting up house a lot of fun. As with any project, the preparation is the most important part of the process. Make sure you find the best home for the money by following this list of 10 things to do before you buy a house.
Check your credit score. In general, lenders require mortgage applicants to have a credit score of at least 660. And you'll most likely get a better deal if your score is above 750. If you need to improve your credit score, give yourself at least a year to work on it. Even if you have a good score, check your credit reports for possible mistakes that need to be fixed.
Save money for your closing costs. A down payment can be as high as 20 percent of the house's selling price. Then you have the fees, taxes, and insurance to consider. If you're a first-time buyer and you aren't buying right away, consider opening a bank account just for these costs. Learn more about the buying process in our guide about the real cost of a mortgage.
Set a budget that allows you to save money. Potential lenders will like to see that you're a responsible money manager, so build up some savings that are separate from your down payment. The extra savings will show lenders that you can pay for emergencies and home repairs, and still make your mortgage payment.
Find your price range. Using a mortgage calculator, figure out how much home you can afford to purchase and the price you're willing to pay. In general, lending experts suggest allocating 28-31 percent of gross monthly income to mortgage expenses. Your monthly expenses, credit rating, and the current interest rates also affect how much you can pay for a home. Have a price range in mind when you start shopping for a mortgage.
Learn what you can about different mortgage options. In addition to the FHA and VA loans, which are the most common, there are special programs in each state, especially for first-time buyers. Shop and compare the options at different institutions, making sure you understand the technicalities of each loan package. Ultimately, your chosen lender will tell you what type of loans you are qualified to receive, but you'll make a more informed decision if you have done some research before talking to a loan officer.
Set up your financing before you start shopping. Get a mortgage pre-approval letter from your lender before you start looking at homes with a realtor. The letter will state your maximum home price and the loan amount, so you can focus your search on just the places you're likely to purchase.
Determine how long you plan to stay in the home. Sometimes you can get a better long-term deal on a loan if you are willing to pay more money on points at the closing. However, you may want to pay less cash up front if you plan to move within ten years.
Check out the neighborhood. After you find a house you like, visit the local shopping areas and parks, and take a walk around the block. This will give you a feel for the area, helping you decide if your family will be at home there.
Consider the home's possible resale value. You may want to move eventually, so it's important to know if your home will retain its value. Check the selling prices of other homes in the area; they should be comparable to your home's price. Other factors that affect the resale value include the home's age, the reputation of nearby schools, and local development projects.
Have the home inspected. Although you can expect to make some home improvements after you move into a new place, you'll want to know if there are any big projects awaiting you before you actually buy the house. You will want to pay for an experienced inspector to check the building's foundation, structural integrity, plumbing, and electrical system, but it is worth the fee if you don't want to make extensive renovations during your first year or two of home ownership.
*The calculator is provided as a self-help tool for your independent use and is not intended to provide investment or financial advice. Overstock.com does not guarantee its applicability or accuracy in regards to your individual circumstances, and we encourage you to seek personalized advice from qualified professionals regarding all personal financial issues.
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