Finding Your Dream Home
Establish good credit, and save as much as you can for a down payment and closing costs. While there are mortgages available for $0 down, 3% down, etc., anything less than a 20% down payment will require that you pay Private Mortgage Insurance which can add substantially to your monthly payment. Any home purchased on leased land will require a 20% down payment regardless of the lender.
Get pre-approved before you start looking
You will have more negotiating power and an edge over non-qualified buyers when you find the right home. If possible, go one step further and get full approval-this will eliminate potential problems down the road.
Set a budget and stick to it
Keep in mind the costs of purchasing a new home, and don't overextend yourself. In addition to the down payment, you will also have closing costs, moving costs, application fees, insurance and likely some cash outlays shortly after your move.
Know what you really want in a home
How long will you live there? Is your family growing, or are your children nearing college age? Keeping these factors in mind will help you determine the best type of loan for your needs.
Choose your loan-and your lender-carefully
Compare loans, ask questions, read the fine print. It may seem that all loans and lenders are equal, but there can be significant financial differences between them.
Consult with your lender before paying off debts
You may qualify even with your existing debt, especially if it frees up more cash for a down payment.
Clean up your credit
Get a copy of your credit report, and review it carefully. You may have open accounts that need to be closed, or items that can be cleaned up with a few phone calls. Making the effort may improve your credit rating which could lead to a better rate and less down payment.
Don't add to your debt
If you are considering other major purchases, such as a car or major appliances, wait until after the home purchase is complete. These items will show up on a credit report, and could disqualify you from obtaining a home loan.
Keep your day job
A stable employment history is one of the elements of a loan approval process. If there is a career change in your future, wait until after your home purchase is completed.
Do not shift funds around
Lenders need to verify all sources of income and funds. By leaving everything where it is, the process will go more smoothly and quickly.
Gather the documents you will need to apply for a loan, and have everything photocopied so you can provide copies to several lenders. The items you will need include your social security number, last 2 pay stubs, tax returns for the past 2 years, a record of your ongoing debts (credit cards, loans, etc.), a list of your residences for the past 7 years. These documents will be required for each borrower.
If you already own a home, you may need to sell it to qualify for a new home loan. Since selling a home can take time, think about listing your home now. If you are renting, plan your move to coincide with the end of your lease.