preparing for homebuying

Have you thought about or are you currently thinking about buying a home? Being married to Real Estate Agent and being a Mortgage Originator myself, we have a few recommendations as to what are great next steps. What most people do not realize is, there is work you can do before going out to look at homes.

CREDIT SCORE CHECK
Have you recently checked your credit score? You can receive a free credit report, one from each credit reporting agency: Equifax, Experian and TransUnion, per year. According to Experian a credit score between 800-850 means you have exceptional credit, 740-799 very good, 670-739 good, 580-669 fair, and 300-579 very poor. Knowing where you are with your credit will help you gauge how realistic obtaining lending could actually be. 

• Your credit score carries weight in the lending process. It is in your best interest to have as high of a credit score as possible. 
• If you have a low credit score, you can work to improve it by paying your bills on time, not opening new credit cards, and minimizing the amount of debt you have in your name.
• Knowing your credit before your lender pulls your credit is helpful because it is ideal that your lender is not sharing personal information with you for the first time. It takes away the 'shock and awe' if you find out from them and it seems inaccurate to you.

DETERMINE WHAT YOU ARE COMFORTABLE SPENDING
Do you know how much you could afford in a monthly payment? Do you currently Rent? If you do, do you plan to expense the same value toward a mortgage, or do you plan to increase or decrease. Knowing the amount you desire to spend is helpful when working with a Loan Officer. When I am working on a pre-approval for a borrower, it is important for me to know what they are comfortable spending. 

• ​As a lender I have access to you, the borrowers (debts), but I do not have access to all other household expenses. I do not know how much you spend at the grocery store, if you have Hulu, Netflix and Amazon Prime. I do not know if you are paying for Health Insurance on your own or if you have a cleaning company that comes monthly. All of these expenses contribute to what you feel comfortable spending. 
• Pre-approving you for a loan, in its simplest form, is based on the amount of debt you carry against the amount of income you make- your Debt to Income (DTI). It is important that you advocate for your own spending ability. There is no way for me to know what your comfort level is if you do not know what it is. Just because I can approve you for $2000 a month for a mortgage payment does not make it best for you. Approval and ability are not the same.
• For example, my husband and I were pre-approved for 35% more in a monthly payment than we ultimately purchased a home for. Just because we were approved for the higher value, did not mean we wanted to spend that much based on our lifestyle and financial goals.

DO YOU HAVE CASH
Do you have liquid cash? I am not talking about investments, I am talking about cash you can access today. As part of the pre-approval process, I ask all my borrowers for a statement that verifies they have the funds needed for the earnest money and the down payment.

• The longer these dollars are in your account the more likely you will be that you will not need a ton of  documentation/verification as to how you came up with the money.
• Start saving now! I would recommend opening a separate savings account to protect and prioritize these dollars.
• If you are unsure of how much you need for your purchase it is a general assumption that the earnest money would be 1% of the purchase price and the down payment would be between 3.5%-20% of the purchase price, pending the loan program you are approved for.