NEWS

Here are five tips on where to start when you are considering buying a home. These are for first-time home buyers and those who have been through the process before. The real estate market is always changing but these basic tips generally stay the same.

Build and maintain your credit

This is something that you should start doing well before you decide to buy a home. It can take months to build credit or possibly even years to improve a bad credit score.

Your credit score is one of the main things lenders will look at when deciding if they will lend to you. 

If you don’t have any credit, there are ways to build credit before you apply for a home loan. You can get a mortgage without a credit score but, it will probably cost more and your income documents and bank statements will be closely scrutinized.

Sign up for a credit card

If you don't have a credit card, getting one and making strategic payments can build your credit score quickly. Make small puchases every month, use it exclusively for gas(especially if it has a points program), or use it for monthly subscriptions like Netflix. 

When your bill arrives DON'T pay off the full balance! This may seem counter-intuitive and you've probably heard, 'always pay the full balance'. This is good advice if you're just maintaining an already great score. If you want to BUILD your score you need to leave a small balance at the end of every billing cycle. You see, credit card companies are not required to report a zero balance. No report basically translates to no growth. Leave a few dollars to roll over to the next bill. This balance will be reported and, when you make another payment next month(leaving a few dollars again), you will be scored as someone who makes consistent monthly payments. This is what mortgage lenders like to see - consistent monthly payments. 

If you already have a card and have been late on payments, now is not the time to open a new line of credit. Start making consistent monthly payments, even if it's just the minimum. Consistently making small payments is better than no payments.  

If you qualify for a higher balance limit, accept it. Don't ramp up your spending habits to match this high limit, though.  Higher limits on your credit card shows mortgage lenders that you can be trusted to pay back larger amounts of money.

Make your utility or rent payments on time

Landlords, utility companies, and phone and internet service providers also report to credit agencies. Making your payments on time is another indicator of whether you will make consistent monthly payments on your mortgage. 

Not all landlords or property management companies make reports. You will need to make sure that your rent payments are being reported to count toward your credit score. There are a few services you can use to report your rent if your landlord doesn’t already do so. Check with the person who receives your rent first, and then look into some self-reporting options if they do not report. Experian is a great resource for self-reporting rent, utilities, and phone and internet service providers.

Become an authorized user

Talk to a family member with great credit about adding you as an authorized user on their card. Doing this adds that card’s payment history to your credit files. You do not have to actually use the card to be an authorized user. Just make sure the primary user has a good credit history on the card, so you also get that good credit. This is a good option if you don't have any credit and are in a hurry. 

Save for a down payment

A downpayment is the amount of money you pay toward a house before financing the remainder as a mortgage. There are different downpayment requirements based on the type of loan you qualify for and the lender's requirements.

If you or your spouse serve in the military you may qualify for a 0% down payment. You can put down money if you choose to and doing so lowers your monthly payment amount.

Most mortgages will require at least 3% of the purchase price for the down payment. The more money you put upfront, the less the lender lends to you and the lower your monthly mortgage payments are. This is especially true if you put down less than 20%. The 20% mark is the cutoff for PMI(private mortgage insurance). Most lenders require PMI on any loan where the downpayment was less than 20%. Saving for a larger down payment can reduce your monthly payment amount and can increase the amount of money that you can borrow.

Get pre-qualified for a home loan

If you are ready to buy, talk to a mortgage broker and get pre-qualified for a home loan. This shows sellers and realtors that you are serious and prepared to make an offer once you find the right home.

Your pre-qualificaton will also tell you how much you can borrow. This helps you to understand what price range to focus on when house hunting. It will help you stay realistic with what you can afford and not waste your time with homes that are out of your price range.

The real estate market is constantly fluctuating as rates  and home prices rise and fall. If it has been a few months since your pre-qualification or rates have changed dramatically, go back to your mortgage broker to check if your qualifications have changed. 

If your fiancial situation changes(new job, loss of income, inheritance, etc.), check with your mortgage broker to see how this will affect you pre-qualification.

Decide in the type of home you want/need

Some of the things to decide on are:

• Number of bedrooms

• Number of bathrooms

• Number of floors

• Kitchen size

• Size of yard

• Size of garage

• Office

• Game room or den

• School district

Once some of these basic needs are figured out, start prioritising wants. These are things that would be nice to have but may not be deal breakers if the house has everything else you are looking for. These could be anything from a large kitchen island to a front porch. Think about what would be in your perfect home and decide whether it's a need or if you could add these things to your home later.

Find a good real estate agent

Find a real estate agent that listens to you and understands what you are looking for. A realtor who knows the market you’re looking in can make the difference between getting your dream home or losing out because they didn't look out for your best interests. 

Real estate agents do charge for their services but, the seller generally covers that cost as part of the agreement. 

You want to feel comfortable with the person you work with. This is someone that you will likely work with for a few months and someone who will help you make one of the biggest financial decisions in your life. Don't sign a buyers agreement if you are not comfortable with the agent. If, after being shown a few homes by the agent you still don't think they are a good fit for you, you can move on if necessary. 

These 5 basics should get you started on your home buying journey. You may have specific needs or a unique financial situation. If you're not sure what steps to take, reach out to me and I'd be happy to  help. 

Happy House Hunting!