Financial Timeline
The process of buying the home of your dreams can be long and tedious, taking up most of your time. It’s up to you, as the consumer, to ask any questions, pay attention to details and learn about the real estate market in the area in which you intend to buy. The more time you give yourself for this process, the better.
It is best to use the following timeline one year before you plan to start seriously shopping for a home.
One Year
Attain your credit reports
You are likely to pay a higher interest rate on your mortgage and decrease your chances of getting a loan if there are errors on your report. Your Century 21 AA Realty agent can point you in the right direction, but free copies of your reports are available from any major credit bureaus. Look for unfamiliar accounts, collection accounts for debts you don't owe and negative marks that are older than seven years. You usually can dispute errors with the bureaus to get them removed, but if the bureaus or creditors withhold, you may need to hire an attorney.
Attain and improve your credit scores
Your credit score is a three-digit number used to gauge your creditworthiness, and it determines the rates and terms you are entitled to for a loan. There are myriad credit-scoring formulas, but the one used by the vast majority of mortgage lenders is FICO. It is best to pay bills on time, and look for negative marks so that you are in the best financial shape possible.
Deal with debts
Hazardous debts such as credit card balances and payday loans reveal that you are living beyond your means. With insurance costs, property tax, maintenance, improvements and furnishing, the costs of homeownership can be overwhelming. Overspending habits must be squashed before you start the home buying process.
Start saving
Stop your monthly massages. Stop eating out. Do whatever you must to put as much money away as possible. In today's market, 5% down payment is the norm, but boost that to 10% and you will have even better financing options. Ideally, once you get your mortgage, you will have enough to cover the payments for two or three months.
Consider automatic bill payment
Make sure every bill gets paid on time. One late payment of 30 days can knock 100 points off your score, and it can take months to recover. If your bill-paying system is unreliable, consider automatic debits and/or recurring payments.
Six Months
Evaluate mortgage options
Many people watch the home of their dreams slip away because they got bad mortgage advice, or simply did not understand the options. It is easy to be enticed by low teaser payments, which later spike leaving you unable to pay. It is up to you to understand the many risks involved and to select that best fits your needs, and your Century 21 AA Realty agent can guide you.
Calculate what you can afford
Once we’ve helped you select your mortgage and down payment, you can start considering how much house you can buy. Consider buying less than the maximum you can afford. You will be able to live comfortably if you keep your housing expenses (mortgage, taxes and insurance) to 25% of your gross income.
Research all costs
Your mortgage is just the beginning. Property taxes, insurance, and homeowners or condo association fees are just a few of the costs you are subject to pay. Similarly, furnishing, repairs and utility bills can add up quickly. Your real estate agent can help fill you in so you know what to expect.
Revisit your savings
Now that you know the costs, you may be inspired to boost your savings. A bigger down payment, for instance, can lead to a lower mortgage payment or bigger home. An emergency fund can help defray unexpected expenses that may derail your financial situation.
Three Months Out
Reduce your credit utilization
Your available credit limit affects the scoring formula. In general, the less, the better. The formula typically uses the balance that shows on your most recent statement, so it is important to try to keep it below 30% or lower. If this is not possible, make a payment before the statement's closing date to reduce the balance reported to the bureaus. If you go this route, make a second payment after the closing date, so you are not reported as late.
Avoid opening or closing accounts
Contrary to what you might think, reducing or increasing the amount of credit available to you during the buying process can make your credit score go down rather than up. Avoid taking such actions until the mortgage process is completed and you have moved into your new home.
Two Months Out
Be aware of the mortgage rate you can expect
Checking your own credit scores does not impact them, so order a fresh set of credit. Then talk to some mortgage lenders to see what rate you can get. Don't apply or give permission for your credit to be pulled; you just want to get a feel for what you can expect.
Understand the effect of mortgage-shopping on your score
Every time you give a lender permission to check your credit, a "hard inquiry" appears on your credit report, and this can affect your sore. Fortunately, the scoring formula lumps all mortgage-related inquiries made within a specified period and counts them as one. You should do your serious mortgage shopping in a concentrated period of time after your offer on the home you want is accepted.
Get approved for a mortgage ahead of time
Pre-approval, where a lender gives a commitment to make a loan, is different and more valuable to sellers than pre-qualification, which merely gives you an idea of the size of the mortgage you might afford with no commitment. You do not have to get a loan from the lender that offers you a pre-approval letter. Getting a pre-approval does involve giving permission for a hard credit inquiry, but the minimal effect on your credit is worth it because you'll be in a stronger position with sellers.
Consider a mortgage broker
Once your offer is approved, you can shop for a mortgage on your own, but if you want a lot of hand-holding through this process or your credit is particularly troubled, you might benefit from the services of an experienced, ethical mortgage broker. We can recommend someone if so needed.
Begin researching neighborhoods select your agent
Check Internet listings, attend open houses and find an experienced guide to help you.
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