Yes. It is a great time to buy. Interest rates and prices are at all-time lows while inventory is at record highs. But what if you can’t buy right now or if you timetable is not right now, but in a few months. What can you do to prepare to buy?
GET YOU FINANCIAL HOUSE IN ORDER…
Lenders are looking for 5 things to qualify you for a mortgage. Assets (money to close and out out down). Credit score 620 to 640 and up. Income. Low or no debt. And job stability. Lenders will look all factors. All five don’t have to be stellar to make it a go, but if at least three are no good, that is likely a no. But some of these things can turn around fast with a little knowledge and determination.
Credit. The score is a minimum standard for lenders. The better the score, the easier it is on other factors. Get your score online form a reputable company. Make sure you are not signing on to any kind of long term reporting.
Look at your report and identify anything that is not yours. Pay off debt and collections. Too many opens and too much are the problems. Recent collections hurt most. Get new credit lines to make a positive impact. See my credit blog to get more in detail about the steps to improve credit.
Too much credit can also hurt. It is a fine balance. Fico scores also reflect how much revolving credit you have. Reduce the amount of credit cards keeping one or two major bank cards and maybe a store or two.
Debt. Debt and credit often go hand in hand. But debt also has a direct effect on your home buying power. Too much debt each month will reduce the amount you can pay in monthly mortgage.
Lenders are looking for 42 to 45 percent of your gross income to be spent on Mortgage and any contracted monthly obligations like car and student loans, minimum payment credit card debt, etc. (do not count utilities in that). So, the lower your debt, the more house you can get or the less work you will do to fix it up.
Income and job stability are also issues that go hand in hand. You have to have income. Jobs are six month minimum on the job in most cases. Some lenders like as much as two years on the job. All lenders have different rules and there are exceptions. Gaps in work (-unemployment) are the hardest to overcome, but you can definitely ask.
Your w2 income and adjusted gross income as stated on taxes are considered in qualification. So if you take a lot of deductions or if you are self employed, the income on your tax returns minus deductions is what will count as your income, not what you say you make.
Last but not least money and assets. Bank statements and 401k, stock, etc. tanglible assets are considered by banks to cover down payment and closing costs. You want to show the money on paper (in the bank) for at least two months. Cash on hand is not considered. You need a paper trail.
So you need to make a plan – month by month. How you can save money and apply it to pay off debt first.
FIGURE OUT WHAT YOU WANT AHEAD OF TIME
There are a lot of homes available right now. Once you have your financial house in order, you need to see what you want in a real house. Try to come up with a wish list of what you want out of a neighborhood, schools, transportation access, etc. And what you both want and need out of a house. What you don’t like. And despite what you can spend, what you are comfortable spending. And know how much or how little work you are comfortable doing. The best home for you may need a little work. Distressed properties today often need a little fix up, but you need to decide what you want. A little up front homework and discussion will help you get your game plan so when you speak to a Realtor to help you, you can have a pretty good direction. Especially if there is more than one person making the decisions. Get on the same page as much as you can. It will save you a lot of time and grief once you are looking if you know what you want. Looking at homes can sometimes be overwhelming. This way you can focus a bit. It is ok to change your mind, but it helps to have a foundation for a start.
FIND A GOOD REALTOR
Even if you need a few months to get things in order, you should start looking for a good Realtor to represent you. It doesn’t cost you anything and will save you money and headaches when they will help you with everything from getting a good lender and inspector to finding and contracting a home. They will also protect your interests to ensure you don’t overpay for a home and get the best deal and are not taken advantage of. The real estate market now is tricky, but a good Realtor can be your guide and successfully help you navigate the waters. They will also answer all your questions and educate you on the process every step of the way. This is what you should be looking for in a Realtor, knowledge, expertise, communication and willingness to help you every step.
RE Marketing Consultants is a licensed Illinois real estate brokerage specializing in helping and guiding buyers, sellers and investors through today’s real estate market to achieve their dreams and goals of home ownership and investment benefits.