BUYING STUFF - 5 Ways to Prepare to Buy a Home

This is a good year for buying a home, as prices are beginning to rise, interest rates are still low, and homeowner tax breaks are still available. To help get the best value from your purchase, consider these five ways to help you prepare to buy a home in today’s market.

1. Check Your Credit
   Building and maintaining a strong credit record is one of the most crucial steps you can take to create wealth. One of the perks of having a good credit track record is that lenders reward you with lower interest rates. For a lender, credit risk is an assessment of the likelihood that a debtor will pay back the money that is loaned to him or her. The best way a lender can make this assessment is to look at a consumer’s past history via his or her credit report. Credit risk is assessed by:
   
   
   1. How much credit you have applied for and currently hold
   2. Your track record for repayment and if you’ve made payments on time
   3. How much you owe in outstanding balances
   4. How much you owe relative to how much income you earn
   5. What types of credit you hold (all credit cards versus a mix of mortgage and auto loans)
   6. And possibly most important of all, how long you’ve been using credit
      
      
   A FICO score is a numerical assessment of all of these factors and ranges from 300 to 850. The higher your score, the lower the assessed risk that you will default on a creditor’s loan. Given today’s more strict lending standards, the first thing you want to do is check your credit score three to six months before you start shopping for a home. If there are any red flags, it might take that long for you to correct them.
   
   
2. Get Prequalified or Preapproved
   You should apply for prequalification or even preapproval for a loan as part of your preparation process. A lender will issue you a prequalification letter once you’ve completed a preliminary application to show that you are qualified to receive a mortgage based on the information provided, as well as your credit report. A preapproval letter demonstrates that the lender verified the qualifying criteria and has already approved you for a mortgage. Many areas of the country have transitioned into a seller’s market. When there are competing offers for a home, a prequalifying or preapproval letter can give you an edge.
   
   
3. Set a Budget
   A lender will approve you for a mortgage loan up to a certain amount. But just because you qualify to borrow that much money, doesn’t mean that you should. Create a budget of your projected expenses in a new home, ensuring that you include a line item for ongoing homeowner maintenance and repairs. Establish for yourself the monthly mortgage payment you would be comfortable paying, and determine the actual range of home prices you should shop for based on your budget. Remember, too, that it’s a good idea to put at least 20 percent down on a home in order to avoid having to pay private mortgage insurance.
   
   
4. Prioritize What You Want
   It’s easy to be seduced by cool features different homes offer that you never even considered. Take time beforehand to list the features that are most important to you – your “must haves.” For example, don’t gloss over the fact that a house has only one bath just because it has an impressive outdoor kitchen. You’ll regret this decision at your first barbecue when there’s a line forming outside the restroom door.
   
   
5. Get an Inspection
   Once you make an offer, be sure to get an inspection. You don’t want to move into your dream home only to find that it is a money pit of rot, mold, leaks and infestation. Problems such as older or damaged electrical wiring, roofs, heating and cooling systems can be expensive to repair.

Buying a new home is both rewarding and a long-term responsibility. Make sure you’re well prepared before you start shopping in order to make the most of your investment.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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