3 Things to do When You Want to Buy a House

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For many, a new marriage or plans to start a family are the incentives for house hunting. When you start thinking about buying instead of renting, there’s a lot more to do than just looking at houses with a real estate agent. Here are three additional things to consider before making an offer:

1. Review Your Finances

The U.S. Department of Housing and Urban Development (HUD) recommends figuring out how much you can afford before you start looking for a home. Review your income, credit rating, current monthly expenses, and assets before you talk to a realtor or look at houses. HUD notes that preparing for home ownership means managing your money.

HUD urges those who want to buy a house to set a savings goal and stick to it each month. Additionally, prioritize your spending, and negotiate with banks and companies you owe money to so financial problems don’t get out of control. HUD has resources for people who want to prepare for home ownership, including housing counselors to help with money management and understanding credit and an online calculator.

shutterstock_1719219112. Improve Your Credit Score

Your credit score affects how much banks and mortgage brokers will lend you. Lenders will check your credit score and your credit history. Credit scores are based on credit histories and are made up of five factors, including payment history, amounts owed, length of credit history, how many types of credit are in use, and account inquiries. The higher your credit score, the better your credit is and the better rate you will qualify for on mortgage loans. According to BankRate, credit scores between 760 and 850 qualify for the lowest interest rates and more varied loan choices. Scores below that will see higher interest rates and fewer loan options.

If you have a lower credit score, it pays to take a year or two to improve it by increasing your income and paying bills on time consistently. Eliminating late payments and collections activities is key to improving your credit score. Taking a second job and applying that income to bills is one solution. Reducing spending is another. Once you’ve worked to improve your credit, subscribing to a service like Lifelock.com can help you protect your credit through the home buying process.

3. Secure a Home Loan

Unless you’ve saved up the entire cost of the home you want to buy, you’ll need a mortgage loan to buy a house. Banks and lenders look at income and debt when you apply for a mortgage loan. They will ask for documentation of your total monthly gross income and the total of all monthly installment payments, and will compare it to information in your credit history to determine how much they are willing to loan you for a mortgage. Other factors in loan approval include the value of the property and collateral such as assets you own.

It is important to know how much of a loan you can get before you even start looking at houses. Many realtors won’t work with you until you have gone through a pre-approval process. Getting pre-approved for a mortgage involves applying to a bank by providing documents that prove your financial history, including income tax records, in some cases you might have to make changes to PAN beforehand. A pre-approval for a mortgage loan is just the first step to securing an actual loan, and is dependent upon an appraisal of the home you want to buy and other contractual activities.

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