Buying a home is an exciting and often nerve-wracking adventure. Before you go house hunting, you must do some work in advance. Understanding the six key steps needed for any real estate purchase will better prepare you for the home-buying process.
Know Your Credit Score
Once you’ve decided to buy a home, check your credit report to see where your credit stands and if anything needs to be addressed. You can get your free credit report once a year at www.annualcreditreport.com. Credit Union of Denver offers Credit Score & More, our free credit score management tool available within Digital Banking. View your current credit score and review your entire credit bureau report whenever you like at no impact to your score.
Doing this identifies all your open lines of credit and all your loan debt. To buy a home, you’ll want your Debt-to-Income Ratio (DTI) under 43%. Most home lenders will require you to have at least a credit score of 580 and a credit score of 620 or higher may qualify you for a better interest rate.
Organize Your Finances
An honest look at your monthly income versus expenses will help you identify areas to save money, consolidate, or do without. Account for everything that your money goes to, including utilities, food, car payments and maintenance, student loan debt, clothing, childcare and kid’s activities, entertainment, retirement savings and any other areas.
Determine How Much Home You Can Afford
Don't make the mistake of buying a house you cannot afford. A general rule of thumb is to use the 28/36 rule. This rule says your mortgage should not cost you more than 28% of your gross monthly earnings, while your total debt payments should equal no more than 36% of your monthly earnings.
Start Saving Early
Buying a home usually requires saving money for a down payment, closing costs, moving expenses, new household utilities, new furnishings and more. Other things to consider are the costs for home inspections, upgrades to your new home, homeowner’s association costs (if any) and related costs. Keep in mind it’s also good practice to have an emergency fund that can cover up to 6 months of living expenses, on top of all these other costs.
Find the Right Lender
Do your homework and shop around to compare loan programs, interest rates and fees. Keep in mind there are various home loan programs available to help certain groups of people, such as veterans, first-time homebuyers and more.
Centennial Lending assists our members with all First Mortgage Loans. To speak to a loan officer at Centennial Lending call them at 720.494.2740 or visit their website.
Once you’ve found a lender, get pre-approved for a home loan before you start house-hunting, especially in this competitive housing marketing. Getting pre-approved helps you research your housing options with confidence and assures a seller knowing they are dealing with a pre-approved buyer.
Selecting A Realtor
Working with a good real estate agent who understands the local market, will stick within your budget, and can guide you through negotiating is paramount. When you find an agent you like (interview a few to find the best fit), you may be asked to sign a buyer's agency agreement. This states you agree to work exclusively with the agent for a set period. Most buyer's agents are paid on commission from the house sale, so you won't pay anything upfront.
Other Things to Keep in Mind
Once your loan is in escrow, it’s important to remember not to open any new lines of credit, apply for any loans or credit cards during this time. Any change to your credit report during escrow may increase your Debt-to-Income ratio and cause your home loan to be declined.
Also, the type of mortgage program you select will determine your down payment amount. If you put less than 20% of the cost of the home as a down payment, lenders may require you add Private Mortgage Insurance (PMI) to the mortgage to protect the loan. This will increase your monthly payment.
Having a sense of the homebuying process before you start your search can help you stay calm during a potentially trying process. Before you can think about buying your dream home, you need to be sure that your finances are in order and that you're thoroughly prepared for the mortgage approval process.
At Credit Union of Denver we also offer 1st Place Mortgages to allow you to refinance your home without paying the higher closing costs of a traditional refinance. If you have sufficient equity in your home, the 1st Place Mortgage is a great alternative for you. To speak to one of our Loan Specialists, give us a call 303.202.5659 | 800.280.0234 or email us at loans@cudenver.com.