Banks are in the business of lending money. However, unlike before the mortgage meltdown when banks would give essentially anyone with a pulse a suitcase full of cash, banks are understandably being more responsible with how they loan money — as they should be. If you’re thinking of buying, here’s our home buyer checklist, to help you out.
Check your credit
This vital step helps you to know what you can comfortably afford. Plus, you may find inaccuracies or things you weren’t aware of, which will allow you time to fix them. Despite the common myths, your credit score won’t take a hit unless it’s run several months in a row — which is unnecessary, as credit reports are generally good for 90 – 120 days.
Pay off credit cards and other debt
Lenders are always looking at a buyer’s habits. Ideally, you don’t have any credit card debt — but if you do, get it knocked out before you make an offer. Never ever open department store accounts as credit bureaus look unfavorably at these, and be sure not to close any existing credit card accounts either as that may be detrimental to your credit.
Hold off on big purchases
Yes, home buying puts people into the “buying mood” for a lot of other things. That new car or deluxe bedroom set may seem like things you can’t live without, but buying them before you close can cost you dearly — in closing costs, interest rate, and stress levels. Wait until the day after you close before making additional, big purchases.
Think before changing jobs
If you stay in the same field and with the same (or better) wages, changing jobs shouldn’t be a big deal. But if changing industries or compensation structure (i.e., from salary to commission) without two full years of tax returns to show your earning potential, your hope of ownership may be seriously delayed. And yes, the bank likely will verify your employment several times, even on the day of closing.
Know what the lenders want
Banks will look at everything about you financially: income, credit score and credit history, outstanding debts, assets and investments, monthly expenses, and your debt-to-income ratio. Be meticulous about how you handle your finances when planning a purchase. Also, be ready to explain any random or abnormal deposits that appear on your bank statements.
Check mortgage rates and closing costs
Your personal bank is one place to check with, but they may be limited in the kinds of loans they can offer which could adversely affect you given your specific situation. Mortgage brokers often have more options available, and thus potentially could be more competitive on rates. Whomever you choose, decide on a lender the same way you want to choose a realtor, by getting a referral from someone you trust.
Be sure to get the lender’s personal cell phone number as well — you likely will need to reach them after hours or over the weekend at some point. Online national lenders are notorious for making fantastic promises but lack the accountability that you will want from the person you trust with what will likely be your largest purchase. And always compare closing costs between lenders you speak with.
No doubt there is a lot involved in this process. There is also little doubt that homeownership brings with it so many upsides. You probably knew that it wouldn’t be a simple walk in the park to get a mortgage. But it’s worth it. Follow our six home buyer checklist tips and it will make things a little easier.