Buying a home is one of the biggest and most important financial decisions in life. In order for the experience to be as simple and streamlined as possible, these are the things you should do before closing on your new property.
- Save money for a 20% down payment and closing costs.
While it is possible to purchase a home with no down payment or a down payment of as little as 3% of the total price, the optimal target for saving you money in the long run is to put down 20% at the time of purchase. With 20% down, not only will you borrow less money, making your mortgage significantly smaller, but your interest rate will be lower as well, which will save you thousands over the life of the loan. This is because paying 1/5 of the home’s price upfront tells your lender that you’re financially viable for the responsibility of homeownership.
Also remember that closing costs will cost you an additional few thousand dollars, so save accordingly in order to be able to complete your home purchase.
- Make sure your credit is in order.
Unless you will be paying all cash, you will need a mortgage to purchase your home. In order to keep your credit in good order, pay your bills on time, especially rent and credit card bills. It is also recommended that you refrain from making any major purchases or taking out new credit accounts for up to two years before purchasing a home so that your credit score remains high and stable. While the FHA minimum required credit score for financing is 580, for the best interest rates on mortgages, it is recommended that you maintain a credit score of 740 or higher.
- Shop for your home after being pre-approved for a mortgage.
Getting pre-approval for a mortgage will help a seller feel confident about your offer because you will have already submitted all the necessary paperwork and know how much the bank is willing to lend you. Do not confuse pre-approval with pre-qualification. A pre-qualification is a bank’s estimate of how much it might lend a borrower, whereas a pre-approval is a set amount the bank is definitely willing to lend the borrower. It is said that shopping for real-estate without pre-approval is akin to walking into a store without one’s wallet.
- Research the specific property you’re interested in, as well as the neighborhood.
Ask your real estate agent how long the home you’re interested in has been on the market and why. If it’s been on the market for several months with no offers, it may be overpriced or part of a slow market. Additionally, consider whether the house will need extensive repairs or remodeling, as those can cost quite a bit. Order a home inspection to discover any problems before you close on the purchase. Also, research the neighborhood as a means to understand how your home’s value may be affected by its surroundings.