Buying a Home in 2016? Create a Financial Housekeeping Checklist
Before you start attending open houses or even perusing listings, take a few basic steps toward ensuring all your financial ducks are in a row.
Have you been waiting for the perfect time to buy a home? This year may be the closest the economy has gotten to a favorable buyers market in a couple years. As CNN Money pointed out, a number of factors are combining to make 2016 a great year home buyers. Prices are leveling off, inventory is increasing and mortgage rates remain low. All of these make the next year a good fit for first-time homebuyers.
Even so, making the move to buy in 2016 means a lot of careful planning, and not necessarily the kind your real estate agent can help you with. In fact, finding a home may be the easy part. Getting all your finances in order could take much more time and effort, but it's still very possible, and remains a solid long-term investment.
Buying a home is the biggest purchase you will likely make in your life, so you need to make sure you're prepared. Before you start attending open houses or even perusing listings, take a few basic steps toward ensuring all your financial ducks are in a row.
"Buying a home is likely the biggest purchase you'll ever make."
Task No. 1: Credit score
Notoriously confusing yet universally acknowledged as important, your credit score is the first thing you need to understand, research and possibly improve before setting out on the quest for a home. As you may already know, a credit score is a financial report card, a concrete value assigned to everyone based on their history with handling debt. While there are several competing metrics used to determine a person's credit risk, the FICO score is recognized as the standard. FICO pulls information about a person's history with credit cards, auto loans and even past bankruptcies to assign a score between 300 and 850, with higher values indicating less credit risk. This is important if you want to get a mortgage to buy a home, since lenders will decide how much money (if any) they will allow you to borrow by checking your credit history. If you're looking to buy a home in the near future, here's how to keep your credit in check:
- Check your history: By visiting AnnualCreditReport.com, you can receive a free report on your credit history from each of the three reporting agencies once per year. Take advantage of these by closely analyzing the details of each report
- Report mistakes: While rare, mistakes do show up on credit reports. According to FICO, if you see an error on your credit report, contact the reporting agency and explain the issue to get it resolved quickly. This should help improve your score.
- Understand your score: While there are many factors that determine an individual's credit score, some are easier to control than others. If you're applying for a mortgage soon, try to avoid doing things that negatively impact your score. Opening several credit cards, missing payments or even spending too much on credit accounts can have an adverse effect on your credit score.
Task No. 2: Budget
Now that your credit is in good shape, it's time to figure out how much you can spend. This means looking at a wide range of factors, including your household income, monthly expenses, how much cash you have for a down payment and more. While there are a number of free calculators and other tools available online, Bankrate recommended getting pre-approval from a lender you trust. Although only about 10 percent of hopeful homeowners take this step, pre-approval can make getting a mortgage much more straightforward. If a borrower is supplying all the required information, a lender can give an exact dollar amount they would be willing to lend to facilitate the purchase of a home.
Once you have this figure in mind, remember that the monthly loan payment isn't all you need to worry about. A down payment of up to 20 percent may apply on some mortgages. There will also be costs associated with closing a sale, getting an appraisal, a home inspection and other miscellaneous expenses.
Once you've completed these two important tasks, you're well on your way to finding the affordable home of your dreams. Reach out to your banking professionals at Vectra Bank for more tips on getting ready for homeownership.