Getting a mortgage in 2010 has become a daunting task. Stressful. Add to that stress the stress of the sound of the ticking clock that is the April 30th tax credit expiration date and you just might decide to continue renting. Don’t do it! We have taken the time to provide a list that if followed, will reduce as much of your stress as possible. These tips will save you a lot of time and heartache as you prepare for home ownership.
1. Get pre-approved. Today! I know, you are saying that this is self serving for the mortgage lender. And for years, that was true. Anyone with a pulse could get a mortgage. Those days are gone and you need to know where you stand as early in the process as possible. Find a reputable lender. Find one who has done a significant amount of business, because a pre-approval letter from someone who doesn’t know what they are doing isn’t worth the paper it’s printed on.
2. Find a realtor. A good one. Trying to save yourself a few dollars on commissions while you are under a time crunch is a recipe for an ulcer. If you find a realtor who is well known in their community and who does a significant amount of business, you will find that the process goes much easier. Especially if you are a first time home buyer.
3. Get your down payment ready. Unless you live in the woods (USDA) or are eligible for a VA loan, you are going to need to front 3.5% of the sales price of the home you buy at a minimum. Get that money lined up today. Don’t have it? Read our article, 5 tips and tricks for getting your FHA downpayment.
4. Don’t buy stuff with new credit The last thing you want to do while you are looking for a house it to start adding a bunch of inquiries and payments to your credit report. Inquiries negatively impact your score. Additional payments hurt your income ratios. Lay low while you do your home shopping.
5. Don’t buy stuff with the credit you already have After making your payments on time (35%) — and it’s probably too late for me to help you on that one, the biggest component to your credit score (30%) is the ratio of used credit to available credit. If you go out and start buying a bunch of stuff for your new home, you are going to wreck your score. Don’t do it. Try to keep the total of your balances at 50% or less of the credit limits. And if you can get it to 30%, even better.
6. Don’t move your money around On an FHA loan, you are going to need to provide 2 months worth of bank statements. You are going to have to show a paper trail for every non-payroll deposit that goes into your account. If you have money moving from 6 different banks and are making cash deposits at the ATM, you are asking for a nightmare when your file gets into underwriting.
7. Don’t close out those unused credit cards. Ever. Reducing your credit lines is terrible for your credit score. What is also bad for your score is to remove a long history with a creditor. Don’t ever close out old cards. In fact, charge something on those old cards every couple of months just to keep the data fresh on them. Maybe treat yourself to a $3 lunch at McDonalds. Just be sure to pay the bill.
8. Include a strong pre-approval letter in your offer package. If November 2009 was any indication, things might get a little competitive in the next couple of months. You will want your offer to stand out and the best way to do that is to have a strong letter of pre-approval from a reputable lender in the package when you make an offer.
9. Don’t wait too long. If you are buying a foreclosure or a short sale, it could take days or even weeks to get a contract fully executed or approved by a bank. You have until April 30th. Don’t blow it. If you want to buy a distressed property, then you need to move quickly.
10. Feel good about the bargain you are about to get. Real estate is priced right. The best way to measure that is to look at the rent you would receive for a given property and see how the cash flow situation looks after you pay the mortgage. By this measure, real estate is as cheap as it has been in 50 years. Possibly ever. So, while this part of the process is stressful, your financial life is likely to take a major step forward. And your favorite Uncle is kicking in $6500 to $8000? Enjoy.