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Looking to buy a new or a new-to-you home can be a really fun experience. We are sort of in the process of buying a home right now actually. We are trying to figure out where we want to move (we're really leaning towards moving to Colorado), and then we will actually start the process to buy a home.
Here are steps to take before you buy a home:
1. How's your credit score?
If you are taking out a loan on your soon-to-be home, you will need a credit score. And a good one at that. If your credit score is too low, then you may not even be approved for a mortgage at all.
If it's not high enough to be considered as someone who has “excellent credit,” then you may be charged a higher interest rate on your loan which can make a home that you thought was affordable no longer affordable.
You should work to improve your credit score as much as you can, and working towards this early on in the home search process is usually ideal. We don't plan on buying again until around 2 years from now, and we are doing little things now to improve it.
2. Contact a few mortgage companies.
Whatever you do, you should always shop around for the best mortgage rate that you can get. A difference of just half a percentage point might mean a hundred dollar difference each month with your mortgage payment.
You also will want to get pre-approved with the mortgage company that you choose before you start looking for a home. You don't want to start searching for a home, find one that you really like, only to find out that you aren't pre-approved at all or that your pre-approval is for less than what you originally thought you would get.
3. Set a budget for yourself.
Even though you are given a pre-approval amount by your mortgage company, you should always set a budget for yourself as well. The bank will usually pre-approve you for much more than what you can actually afford.
Instead, you should go over your income, expenses and what you actually feel comfortable spending.
With our last home, I believe we were pre-approved for a home that was around 6 times our annual salary. I still cannot believe they approved us for that much when we were so young and broke!
How did your last home-buying process go?
Image via Flickr by Lendingmemo.com
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