Ready To Buy A Home

Who’s Who In The Transaction

Life Of A Purchase & Sales Transaction

Title Insurance

What is Escrow

Inspection Process

Who Pays What?


The Loan Process

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Ready to Buy

“Buying a home can be complicated but it helps to be prepared for the process in advance. Before starting to seriously shop for a home, consider the following one-year timeline that’ll help you arrange your finances. The more time you give yourself for this process, the better.”

A Year Out

GET YOUR CREDIT REPORTS If there are errors on your reports, you will pay a higher interest rate on your mortgage. You might have issues getting a loan. The three major credit bureaus (Equifax, Experian and TransUnion) offer free reports from Scan for suspicious activity, collection accounts for debts you don’t owe and negative marks (other than bankruptcy) that are older than seven years.

OBTAIN YOUR FICO CREDIT SCORES Your credit scores are three-digit numbers used to measure your creditworthiness. They help determine the rates and terms for your loan. While there are hundreds of different credit-scoring formulas, the majority of lenders use FICO.

CONSIDER A CREDIT–MONITORING SERVICE Given how important your credit and credit scores will be in buying a home, many consumers appreciate the early warning if a collector tries to post a bogus debt.

ATTACK YOUR DEBT Try to eradicate bad debt such as credit-card balances and payday loans which signal that you are living beyond your means. Getting any overspending problems fixed before you buy a home is key. Homeownership typically involves big costs such as property taxes, insurance, maintenance, repairs, improvements, and decorating.

SAVE MONEY Cut back on luxury expenses and put as much money aside as possible. Think about your dream of homeownership. Ideally, try to have at least a 5% down payment but putting down 10% will give you even more financing options.

SWITCH TO AUTOMATIC BILL PAY A single, 30-day late payment can knock 100 points off your score so be sure every bill gets paid when it’s due. If you don’t have a reliable bill-paying system, consider using automatic debits so payments come directly from your checking account or an online bill-payment system’s recurring-payment feature.

6 Months Out

RESEARCH MORTGAGE OPTIONS Many people have lost their homes in today’s market, because they didn’t understand their mortgage or listened to poor advice. For some, low teaser payments for a more expensive home were enticing, but payments increased and they are unable to pay. Understand the risks of the different types of mortgages.

RESEARCH HOMEOWNERSHIP COSTS Remember that homeownership not only includes your mortgage, it also involves property taxes, home insurance and perhaps homeowners or condo-association fees. You might face higher utility bills, maintenance and repair costs, too. Speak with your homeowner friends so you know what to expect.

HONE YOUR SAVING STRATEGIES A bigger down payment could result in a larger home or a lower mortgage payment. Build up your emergency fund for unexpected home expenses

3 Months Out

REDUCE YOUR CREDIT UTILIZATION Remember: less is better. At least when it comes to the FICO scoring formula. It’s sensitive to how much of your available limits you’re using on your credit cards and other revolving lines of credit. Even if you pay your balances in full every month, the balance that shows on your most recent statement is the formula used. Keep that balance below 30%, or even lower.

DON’T OPEN OR CLOSE ANY ACCOUNTS Until the mortgage process is completed and you’ve moved into your new home, avoid actions such as opening credit accounts or closing old ones that could potentially harm your credit.

2 Months Out

LOOK INTO POTENTIAL MORTGAGE RATES Checking your FICO credit scores doesn’t ding them so order a fresh set and speak to a few mortgage lenders about rates. Don’t apply yet or give permission for your credit to be pulled; just get a feel for what you can expect.

UNDERSTAND THE EFFECT OF MORTGAGE SHOPPING ON YOUR SCORE Everyone wants to get the best loan rate and terms possible. Each time a lender checks your credit, a “hard inquiry” appears on your credit report and dings your score slightly. Good news is that the FICO scoring formula counts all mortgage-related inquiries within a specified period as one. It is important to do your serious mortgage shopping in a fairly concentrated period of time, typically immediately after you enter escrow.

GET APPROVED FOR A MORTGAGE IN ADVANCE Pre-approval, in which a lender gives a commitment to make you a loan, is different and more valuable to sellers than pre-qualification, which gives you just an idea of an affordable mortgage amount without any commitment. You are not obligated to get a loan from the lender that offers you a preapproval letter. Even though a pre-approval involves a hard credit inquiry, the small potential ding on your credit is worth it because you’ll be in a stronger position with sellers.

CONSIDER A MORTGAGE BROKER After you are in escrow, shop for a mortgage. Get referrals from family and friends or look on the National Association of Mortgage Brokers website.

RESEARCH NEIGHBORHOODS AND AGENTS Check Internet listings, attend open houses, and talk to others to identify a professional to help you in your home search.

Once You’re In Escrow

SHOP FOR A MORTGAGE Consider the national mortgage lenders, local lenders and online brokers. The full approval process typically takes four to six weeks so be sure to move quickly.

CONDUCT APPRAISAL, HOME INSPECTION AND WALK–THROUGH An appraisal is required for loan approval. An inspection is not required but can alert you to any serious problems before the deal closes. The walk-through is usually done within 24 hours of the deal closing, so you can make sure that the home sellers have performed any agreed-upon repairs and the place is in move-in condition.

GET HOMEOWNERS INSURANCE Mortgage lenders require this coverage, and you’ll need to prove you have it at closing.

CONFIRM CLOSING COSTS Your “closing” entails signing all loan and escrow paperwork and paying agreed upon amounts, which can include your down payment and your share of legal fees, paperwork costs, property taxes and title insurance.