Home > Mortgages > 5 Things Homebuyers Should Do Right Now

Comments 0 Comments

Have you decided it’s time to buy a home? Before you start popping in at open houses, or searching for your dream home online, there are a few essential make it or break it tasks you’ll need to tackle. After all, if you fall in love with a home, you want to know whether it’s within your reach.

1. Find Out How Much Home You Can Afford

Unless you are planning on paying cash for your next home, you will need to be able to answer the question, “How much house can I afford?” To answer that question you need to know two things: the total monthly payment you can afford, and how that translates into the price of the home you can afford.

A mortgage calculator can make the math easy — here’s a home affordability calculator that will help you crunch the numbers. It will help you understand what you can get based on your down payment, income and debts. Remember it’s not just about what kind of mortgage payment you think you can afford; it’s also about what a lender says you can afford and they have specific formulas they use to determine that.

2. Check Your Credit

Your credit reports and scores will play a key role in the loan you get. Every item on your credit report must be considered. Balances and monthly payments will count toward your debt-to-income ratio, for example, and any items on your credit report listed as “under dispute” must usually be resolved before you can close on the loan. You need “at least a 620 credit score or more if you want to get a loan and if anything is in dispute, get it out of dispute,” says Scott Sheldon, senior loan officer with Sonoma County Mortgages.

If possible, get your free annual credit report at least a few months before you plan to start house shopping, if possible. That will give you time to addresses errors or problems with your credit. Check your credit scores, too (which you can get for free every month on Credit.com). Mortgage lenders may use a different version of the FICO score than the one you get but you can still get an idea of which factors are strong and which ones may cause issues in the loan process.

3. Investigate Mortgage Options

“Educate yourself about your mortgage options,” says Chris Birk, Director of Education for Veterans United Home Loans. “The different loan types all come with benefits and potential challenges.”

If you don’t have a large down payment, for example, you may need to consider an FHA loan which requires a 3.5% down payment, but it may be a more costly option in the long run. Servicemembers and veterans may be able to qualify for a 0% down payment VA loan.

“Don’t box yourself in when it comes to potential loan options,” says Birk. “Skip past the FHA option if you can spend time building your credit and savings.”

4. Get Pre-Approved

The number one thing you should do before you start looking for a home is to get pre-approved for a loan. When you get pre-approved, your loan officer will confirm your credit and loan information, so you’ll confidently know what size mortgage you can get. “It’s an important indicator to sellers and real estate agents that you’re a serious buyer,” Birk says, adding that “some listing agents won’t even accept an offer on a home without a copy of your pre-approval letter.”

5. Don’t Do Anything Crazy

If you are serious about buying a home, now is not the time to finance a new car, switch jobs, or make other major moves. Instead, buckle down and keep your finances carefully under control. Your financial documents and your credit will be closely scrutinized both at the time you apply and again before you close, and you want everything to be as squeaky clean as possible. “Don’t move money around, especially if you are not willing to show where the money came from,” Sheldon says. Lenders will scrutinize every deposit, transfer, etc., and want to know where that money came from, he warns.

Similarly, don’t close credit card accounts hoping that will boost your credit scores. It may actually hurt them. And that credit card offer that came in the mail promising 10,000 bonus reward points if you apply right now? You probably want to hold off on shopping for a new card until you close on the home purchase and the loan. Credit repair right before you try to get a mortgage can be risky; you may end up lowering your score rather than improving it.

Checking your credit and getting your finances in order early — before you’ve already fallen in love with a particular home — is not only smart, it can make buying a home a much more enjoyable process.

More on Mortgages and Homebuying:

Image: FogStock/Erik Palmer

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team