Your Credit Rating
Even if you are sure you have excellent credit, it is wise to double-check at the outset.
Straightening out any errors or disputed items now will avoid troublesome holdups down the
road when you are waiting for mortgage approval. You may see disputed items, in
addition to errors caused by a faulty social security number, a name similar to yours, or
a court ordered judgment you paid off that hasn't been cleared from the public records. If
such items appear, write a letter to the appropriate credit bureau. Credit bureaus are
required to help you straighten things out in a reasonable time (usually 30 days).
There are three credit bureaus which
provide information on the borrowers credit, how much they have, how they use it and how
it is managed, to the loan officer and lender. These bureaus are Equifax, Experian, and
Trans Union. Each report will show the borrowers current credit as well as their credit
history, and a credit score. This score can range from 300 to 900, 900 being the best. The
score is derived using the following formula:
35% - Pay history
30% - Credit usage
15% - Length or depth (age) of credit reporting
10% - Type of credit
10% - New credit
To obtain more information, visit www.myfico.com
TIP: Make sure that any outdated
derogatory entries are deleted from your credit file. Adverse credit information is
not supposed to be reported or included on your credit report after seven years (except
bankruptcy information, which can be reported up to ten years).
TIP: Officially cancel inactive credit cards. If you have an inactive credit
card with a $5,000 limit, even though you owe nothing on it, some mortgage lenders will
consider that a potential future debt. Too many inactive credit cards with significant
credit limits could keep you from obtaining a mortgage loan. Do not just cut up your extra
cards; officially cancel them, and do it now so there will be time for the news to reach
the credit bureaus.
TIP: Hold off on making any major credit card or car purchases while you're
waiting to apply for a mortgage. Monthly payments you are obligated to pay will be
counted against you, and reduce the amount of the mortgage loan you will be offered. Even if
you have been pre-approved for a mortgage, that approval is subject to last-minute
evaluation of your financial situation, and a spending spree for appliances, furniture and
other goodies intended for your new home may wreck your chances for buying it.
Pre-qualification and Pre-approval on a
Any reputable real estate broker will "pre-qualify" you for a mortgage before
you start house-hunting. This process includes analyzing your income, assets and present
debt to estimate what you may be able to afford on a house purchase. Mortgage brokers, or
a lender's own mortgage counselors can also calculate the same sort of informal estimate
Obtaining mortgage "pre-approval"
is another thing entirely. It means that you have in hand a lender's written commitment to
put together a loan for you (subject only to the particular house you want to buy passing
the lender's appraisal). Pre-approval makes you a strong buyer, and is welcomed by
sellers. Pre-approval will also speed up the entire mortgage procedure once you have found
the house you want. The only remaining question will be whether the house will
"appraise" for enough to warrant the loan.
Become an Educated Buyer: Research
Neighborhoods, Read Ads and Visit Open Houses
Drive around neighborhoods that interest you. Particularly on weekends, you will see
"Open House" postings. Do not hesitate to walk in, even if you are not ready to
buy yet. Visiting open houses is an excellent way to familiarize yourself with the market.
Keep in mind that you have no obligation to any of the real estate agents you may meet
along the way.
Your Wish List
Making sure you end up with the right home involves figuring out exactly what features you
need, want and do not want in a home. Before starting your search, you should make a
"wish list" to decide which features are absolutely essential, which are nice
"extras" if you happen to find them, and which are completely undesirable. The
more specific you can be about what you are looking for from the outset, the more
effective your home search will be. Also keep in mind, that in the end, every home
purchase is a compromise.
Common Home-Buying Mistakes to Avoid
1. Looking at houses without first
getting loan approval. In today's marketplace, touring houses you think you would like
to buy without knowing your buying power is a waste of everyone's time. It is discouraging
for any buyer to fall in love with a house and write up a contract only to find out he or
she cannot afford the dream home. Getting loan pre-approval, however, is like having a
credit card in your pocket for the purchase price. It eliminates surprises and saves
2. Buying the wrong type of home.
Many times, we have seen buyers purchase a home that has one characteristic they like, but
none other. It might have a great kitchen, but overall it's too small (or too large). The
price is great, but the house is too far from work. It is a perfect fixer-upper, but the
buyers are not handy with tools. Be sure to review every aspect of the house and compare
it, not only with your "wants" list, but also your "lifestyle" list.
3. Failing to use a buyer's agent. It
used to be that all real estate agents worked for sellers (even an agent who brought a
buyer was actually a subagent of seller, representing the seller's interest). In today's
market, buyers can and should have buyer's agents, who provide full representation
for the buyers and look out after the buyer's best interests. Seller's and builder's agents,
while required to treat buyers fairly and honestly, are compelled by agency law to
negotiate the best deal for their clients-the seller and the builder. Purchasing a home
without a buyer's agent but with a seller's or builder's agent is somewhat like going to
court without your own lawyer but with your opponent's lawyer.