A good place to start is by using one of the many online mortgage calculators. By entering your income and a few other details, you’ll get an idea of how much home you might be able to afford. But even if the numbers don’t look good, don’t stop there. Calculators can only offer so much help, especially when there are lots of different variables that impact your potential to get a loan. So best advice? Sit down with an actual lender, run the numbers, look into special options, and then if you still don’t qualify for a loan, at least you’ve developed a relationship with a lender who can help you map out a plan. The take-away is that you don’t have to go it alone. The sooner you can reach out to professionals, the sooner you’ll be mowing your own lawn. Or not. You get to decide that part.
Turns out, whether you were on the Honor Roll or barely rolling through school, the grade that matters most when you want to buy a house is your credit score. A credit score is based on things like: Do you pay your bills on time? How much credit card debt do you have? And how long have you had a credit history?
Credit scores can range anywhere from 300 to 850. The higher your credit score number, the better interest rates and loan options you’ll qualify for.
When you rent, you’re basically writing a check every month so someone else can pay off their mortgage or make money. When you own, you’re building your own investment. Not only that, but as a homeowner you can deduct your mortgage interest and property taxes from your federal taxes every year. Add to that, the fact the home values in the US are expected in increase about 4% in the upcoming year. Owning a home makes a lot of financial sense, plus you don’t have to ask anyone if you can paint your walls the Pantone color of the year.
There are four main ways you can figure out your score:
- Check your credit card statement. A lot of credit card companies and some auto loan companies have started providing credit scores. It’s usually listed on your monthly statement or available in your online account.
- Talk to a non-profit credit counselor. These are trained specialists who can often give you a free credit report, walk you through it, and even help you come up with ways to improve your score.
- Use a credit report service. These are the “free credit score” services you’ve probably heard advertised. And some of them really are free. Others, however, require a credit card and charge you if you don’t cancel by a given date. So if you go this route, just read the fine print.
- Buy your credit score. If you’d rather go straight to the source, you can buy your score directly from one of the three main credit reporting companies: Equifax, Experian and TransUnion. Just remember, you’re not obligated to buy any of the additional services they may offer you, like identity protection or background checks.
Please see all questions above. Joking aside, buying a home can be complicated. We’ve only scratched the surface with these frequently asked questions. That’s why we take seriously our commitment to simplifying not just the home search, but the entire home buying process. But for those of you who like lists, here’s our top 10 reasons to use a realtor:
- Realtors know their MLS from their CMA, their PCF from their FMR. It’s a jungle of acronyms out there. Your realtor knows how to tame them all.
- Realtors know how to market. From search engine optimization to 3-D video tours, realtors know how to use the latest technology to engage the most valuable prospects.
- Realtors know people who know people. They might not be able to score your front row tickets, but they can connect you with all the important people you need to know, like loan officers, inspectors, appraisers and more.
- Realtors know the neighborhoods. Whether you’re looking for a place with a fast commute or a home in a great school district, your realtor knows which neighborhoods will fit your wish list and your pocket book.
- Realtors understand the mortgage process. Will you need to complete a 1003 Form? Should you buy discount points? And what the heck is a balloon mortgage? Take a deep breath and remember, your realtor does this for a living. They’ll be by your side helping navigate the process from loan approval to closing papers.
- Realtors know what’s a good price. They’ve spent the time in the trenches. They know the market, the inventory and the pool of potential buyers. They can help you get the best home at the best price.
- Realtors know how to negotiate. Because not everyone may agree on what the best price is, realtors are skilled at using negotiation tools like contingencies, allowances and other incentives to keep the deal alive and get you into the house you want.
- Realtors know when you need a hug. Somewhere along the way you’ll likely feel like your realtor is part business guru, cheerleader and therapist all in one. Buying a house can be an emotional roller coaster. It’s your realtor’s job to help you keep all loose items secured and inside the ride at all times. And if you’re not the huggy type, they’re great at texting emojis too.
- Realtors are your second set of eyes at closing. Nothing is quite as exciting as signing on the dotted line and being handed the keys to your new home. But in all the excitement, you want to make sure you know what you’re signing. Having your realtor by your side at closing is great for moral support, explaining terminology, and they always have an extra pen.
- Realtors are FREE to the buyer. Sounds crazy. You get the therapist, the cheerleader, the business pro – for free? Well . . . yes. Realtors get paid by the home seller, not the home buyer. So, unless you just really like studying mortgage documents, real estate terminology, neighborhood zoning papers . . . well, you get the idea. Finding a trusted realtor is the first step to getting your new home.
Fixing a low credit score is kind of like losing weight. It won’t happen overnight. But, by making better money choices, over time, you credit score will improve. Here are the top things you can do right now:
- Check your credit report. This time you’re not just looking for that magic number. Your report will show everything, good and bad, that’s impacting your score. So, look for errors. Make sure there are no late payments showing up that you’ve actually paid. And, if there are any errors, dispute them with the credit bureau.
- Set up automatic payments or payment reminders. Not paying your bills on time can be of the biggest negative factors impacting credit scores. You may just be a few days late, but over time, all of those late payments add up. So, take the time to set up reminders or auto drafts to start cleaning up your payment history.
- Reduce the amount of debt you owe. Don’t get overwhelmed by your total debt. Take it step by step and create a plan. Look at each credit card balance. Figure out how much you owe on each and how much you’e being charged in interest rates. You may even consider consolidating your balances onto one low-interest card and commit to paying a specific amount each month. When it comes to credit cards, less is more; fewer cards and lower balances will help improve your credit score.
- Don’t open any new credit cards. We’ve all been there. You’re checking out of a store and they offer you 20% off your entire purchase if you open up a store credit card. Repeat after me, “Just say no!” Seriously, it doesn’t matter how much you might save or how cute the accessories are. Each time you get a new credit card, your credit report, and chances of getting a good home loan, go down. So pass up the store cards and store up credit for that dream house you’ve always wanted.
Thinking about buying a house before getting pre-approved for a loan is like going to the mall without your wallet. Don’t waste your time and risk homebuying heartbreak. Getting pre-approved for a home loan help you:
- Be competitive. The current real estate market is pretty competitive. When a great home comes on the market, it likely won’t be available long. Being pre-approved lets you jump in the game, knowing what you can afford and being prepared to negotiate with confidence.
- Stand out. Let the seller know you mean business. Only about 10% of homebuyers take the time to get pre-approved, so this is an easy way to make yourself stand out of the pack when placing an offer on a home.
- Get accepted. Some sellers won’t even consider an offer from a buyer who hasn’t been pre-approved. And you can’t blame them. When the seller says, “Show me the money,” being pre-approved let’s you do just that.
- Just do it. Some potential buyers put off getting pre-approved because they’re afraid they might not get a loan for as much as they want. Let’s be honest here. That’s sort of like being really sick and not going to the doctor because of what she might say. Knowledge is power. Be brave. Figure out what you can realistically afford, then start house shopping with peace of mind.