Real Estate Report: Important first steps to buying a home
With affordability on the rise, and interest rates at all time lows, more people are asking the question—should I rent or buy? The most important first step in making the decision to rent vs. buy is getting pre-qualified for a mortgage.
Below are five easy steps for those interested in pursuing the purchase of a home:
1. Get a few referrals for a lender from a REALTOR® (can also be from a friend or co-worker, but a REALTOR® will have experience with different lenders and be able to offer referrals based on your specific situation). There are advantages to calling a local lender, such as the ability to meet with them face to face. It is fine to speak to more than one lender to ask questions and get a feel for their professional manner and compare rates, but you may want to narrow your search down before you give authority for the lender to pull your credit report.
2. You will need to be prepared to provide information such as gross monthly income and monthly recurring payments such as car and credit card payments. The lender can help you determine your debt to income ratio, which is basically a percentage that compares your current debts to your current income. This number varies, but should usually be under 40 for the best interest rates.
3. Give permission for the lender of choice to pull your credit report. The score most widely used by lenders is FICO (Fair, Isaac and Co.), and most lenders will require at least a 620 to qualify for a loan, but the higher your score, the better the interest rate.
4. Have the lender do a sample “good faith estimate” on a property of your choice to show you how much money you will need for down payment and closing costs (there are 100% financing options available for some local areas, and others qualify for FHA, which is a 3.5% down payment).
5. Finally, have the lender prepare a letter of prequalification that you can supply to your REALTOR® of choice. This will supply a price guideline to follow when looking at houses.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
