Credit scores, mortgages and bills, oh my god! 5 things to know before buying a home

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A lot of people want to buy a home, but until they start the process, all they have is the desire to do it. Here are some basics you should know before you even begin the home search process.

See: What you need to do now to buy a house in 1 year, 2 years or 5 years
Find out: How aspiring homebuyers can boost their financial confidence in today’s climate

Credit score

Your credit score is one of the most important factors, and truly one of the few, that banks have in determining how much of a loan risk you are. If you have years of a good payment history under your belt and good use of credit, a bank will see you as low risk and likely be more willing to lend you money. You need to increase your credit rating before you even think about buying a home because credit scores take time to build.

An easy way to do this is to reduce your use of credit by paying off your debt as much as possible and not using more than 15% of your credit limit in a single cycle. Another tip is to take out both a Mastercard credit card and a Visa credit card, which shows that other lenders already see you as a low risk borrower. Challenging any odd or bad rating on your credit score can also be helpful and is a good place to start.

To post. To buy. Liquidity.

People rarely talk about it, because once the momentum starts to buy a home, there is rarely anything else on the buyer’s mind. Getting a mortgage now is much more difficult than it was 10 years ago and one great thing that legitimate banks look at when determining if you can actually afford a mortgage is post-purchase liquidity – or how much money you will have in cash after you actually buy the house. A lot of people think they’re saving to buy a home and use up all their savings when they close – but that’s where the difference between buying something and affording it is.

If you empty your savings account to put down a down payment and pay closing costs, chances are you can’t afford the purchase. Make sure you give yourself time, i.e. an extra 1 or 2 years, to save money so that you are not in an emergency of having to borrow more money just to survive. Banks will also favor those with greater post-purchase liquidity for obvious reasons.

Pre-approval

A pre-approval is one of the best tools in a buyer’s arsenal. This shows the seller that you are serious and gives the bank an idea of ​​what they are considering in terms of risk. A good tip: Always get pre-approved for more than you think you need. This will give you leeway in the future and relieve your stress when you are not bound by a particular price point.

Understand ALL costs

Buying a home is more than a purchase – it’s the most expensive thing you’ve ever done in your life and in reality it’s a waste of money. You’ll need a down payment, closing costs, home insurance, and post-purchase cash just to get your foot in the door. Then on day one, you’ll start paying property taxes on top of your mortgage, utilities, repairs, and insurance every month just to keep the lights on. A realistic budget of what it will actually cost to own and maintain a home is almost more important than having the money to buy it.

Think of it like this: anyone can buy something expensive once, but can you keep giving the money away for years to come? Keep the monthly costs in mind before you jump in with both feet.

See: 7 Ways To Avoid Home Buyer’s Burnout
Find: Starter Home or Dream Home? How to decide if you should buy now or save longer

Coffee for loved ones

The famous line immortalized by Glengarry Glen Ross rings true in any sales environment, especially real estate – the people who sell you houses and mortgages are skilled sales professionals trying to make a profit. on you, and you have to remember that. These sales professionals even have an advantage over other salespeople like stock brokers and investment bankers. Traders and Bankers sell things that are confusing to the average Joe and mostly operate in their own world. Yet real estate professionals have the advantage of selling you the dream, and they know it. They will talk about the nursery, the dressing room, and how you should be entitled to have a home for your family – these are sales ploys.

Homeownership is part of the American dream, and the postwar culture lent itself well to families using military grants to migrate to newly built suburbs that were transferred to future generations. Times have changed and owning a home is a privilege and something very serious. Don’t let a real estate professional allay any fears you might have about such a serious purchase. Approach any conversation with a defensive salesperson and always keep in mind that these people will take advantage of you and generally work on commission.

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This article originally appeared on GOBankingRates.com: Credit Ratings, Mortgages and Bills, Oh My God! 5 things to know before buying a home

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