Credit ratings, mortgages and bills, oh my! 5 things to know before buying a home

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kate_sept2004 / Getty Images

kate_sept2004 / Getty Images

Many people want to buy a housebut until they start the process, all they have is just the desire to do it. Here are a few basic principles you need to know before you even begin the process of finding a home.

See: What do you need to do now to buy a house in 1 year, 2 years or 5 years
To find: How New Home Buyers Can Build Financial Confidence in the Current Environment

Credit rating

Your credit rating is one of the most important and indeed one of the few factors that banks must determine in order to determine your credit risk. If you have years of good payment history and good use of credit, the bank will consider you a low-risk person and will probably be more willing to lend you money. You need to improve your credit score before you even think about buying a home because it takes time to build.

The easiest way to do this is to lower your loan utilization rate by paying off as much debt as possible and not using more than 15% of your credit limit in one cycle. Another tip is to take a Mastercard and Visa credit card, showing that other lenders already consider you a low-risk borrower. It can also be helpful to dispute any strange or bad ratings of your credit rating, and this is a good place to start.

Message. Purchase. Liquidity.

People rarely talk about it because once there is an impulse to buy a home, the buyer rarely thinks about anything else. However, getting a mortgage is much more difficult now than it was 10 years ago, and legitimate banks are looking at a major issue when deciding whether you can afford a mortgage. liquidity after purchase – or how much cash you will have after buying a house. Many people think they are saving money to buy a home and depleting all of their savings when they close, but that is the difference between buying something and giving it.

If you empty your savings account to make your down payment and closing expenses, chances are you won’t be able to afford the purchase. Make sure you have time, that is, an extra 1 or 2 years, to save money so that you don’t have to take even more money to survive. Banks will also give preference to those with higher post-purchase liquidity for obvious reasons.

Pre-approval

A preliminary approval is one of the best tools in the buyer’s arsenal. This shows the seller that you are serious and gives the bank an idea of ​​what they are looking at in terms of risk. A good tip is to always get pre-approval in excess of what you think you need. This will give you wiggle room down the road and relieve stress when you are not bound by any particular price level.

Understand ALL costs

Buying a home is more than buying – it’s the single most expensive thing you’ll ever do in your life, and in fact, it’s a money drain. You will need a down payment, closing costs, homeowner’s insurance and liquidity after the purchase, just to get started. Then, on the first day, you’ll start paying monthly property taxes IN ADDITION of mortgages, utilities, repairs and insurance to keep the lights on. A realistic budget for what it will actually cost to own and maintain a home is almost more important than having the money to buy it.

Think of it this way: Everyone can buy something expensive once, but will you be able to shell out the money for years to come? Be aware of monthly expenses before jumping with both feet.

See: 7 ways to avoid burnout home buyers
To find: Home for newbies or a dream home? How to decide whether to buy now or save longer

Coffee for door closers

The famous phrase immortalized by Glengarry by Glen Ross is true in any sales environment, especially real estate – the people selling you homes and mortgages are trained salespeople trying to make a profit from you, and you must remember that. These sales professionals even have an edge over other sellers such as stock brokers and investment bankers. Merchants and bankers sell things that baffle the average Joe and mostly operate in their own world. However, real estate professionals have an advantage – they sell you the dream, and they know it. They’ll talk about the nursery, the dressing room, and how you should be eligible to have a home for your family – these are gimmicks to sell.

Home ownership is part of the American Dream, and the post-WWII culture has worked well for families using war subsidies to migrate to newly built suburbs that have been passed on to future generations. Times have changed and owning a home is a privilege and something very serious. Don’t let a real estate professional allay your concerns about such a major purchase. Engage in any conversation with a defensive salesperson, and always remember that these people will profit from you and usually work for a commission.

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This article first appeared on GOBankingRates.com: Credit ratings, mortgages and bills, oh my! 5 things to know before buying a home

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