If you have little experience in real estate, buying a home can seem intimidating. Knowing what to expect and how to prepare can help smooth out the process, especially if you're a first-time home buyer. Here are some tips on how to prepare to buy a house.
Focus On Your Credit
Having good credit is vital if you want to get approved for a mortgage at the best rates. Get a copy of your free annual credit report and review it carefully. If you see any inaccuracies, contact the credit bureau and the creditor involved to get them corrected. While inaccuracies on a credit report can be cleared up relatively quickly, keep in mind that bad credit notes — such as missed payments and defaults on loans — can't be removed and will stay on your credit report for seven years.
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Develop a Savings Strategy
Buying a house is no small investment. In addition to your down payment, there are closing costs and taxes, not to mention the cost of moving, furniture and decorating. Ideally, you want to save as much money as possible ahead of time, while reducing your current debt.
Focus on eliminating high-interest debts like your credit cards, while building sufficient savings. Look for ways to reduce your discretionary expenses, such as eating out often or grabbing coffee before work. Cutting your expenses by only $20 each week will put an extra $1,000 in your bank account by the end of the year.
Select a Price Range
There are plenty of online calculators to help you determine what price range to look for in your first home. Simply enter your income, monthly debts and how much you can put toward a down payment to see what price range should be affordable. Select different mortgage periods and interest rates to see how they will affect your monthly mortgage payments.
Go to Open Houses
Attending open houses is a great way to check out what's available in your price range while motivating yourself to keep working toward owning your own home. When the time comes to buy a house, you'll probably want a real estate agent to help guide you through the process. Talk with agents at different open houses about what you're looking for and your time frame for purchasing. When you find a real estate agent you're comfortable with, keep her card!
Get Pre-Approved for a Mortgage
Once you have enough money saved for your down payment, it's time to start shopping. Getting a pre-approved mortgage will eliminate the guesswork on what's affordable for you. A good time to start talking to lenders is about four months before you'll be ready to actually make a purchase. This will give you some time to address any problems in your finances should you get rejected or find that you're not qualified for the best interest rates.
Once you get a pre-approval letter from a mortgage provider, check to see how long it is valid. In most cases, a pre-approved mortgage is good for 45, 60 or 90 days. You should also keep an eye on interest rates while you're shopping. If mortgage interest rates go up, the amount you are pre-approved for may go down.