The home-buying process starts with organizing and understanding your finances. Buying a home is likely one of the single largest investments that you will make. Therefore, we recommend that you spend some time assessing your individual financial situation and becoming informed about the mortgage process, types of mortgages available, and interest rates.
The step-by-step list below will help you get started with analyzing your finances before you begin a home search.
1. Clean up your credit. Request and review your credit reports. Fix any errors that you find on these reports. Check out this resource from the Federal Trade Commission for more detailed information: Credit Scores: How Credit Scores Affect the Price of Credit and Insurance
2. Determine how much cash you have for a down payment and closing costs. Take into account the current equity in your home and cash savings that you may have.
3. Research the mortgage process, types of mortgages, escrow accounts, current interest rates, etc. KnowYourOptions.com by Fannie Mae is a great place to start.
4. Determine your budget for a mortgage payment. Note that your lender decides what you can borrow, but you decide what you can afford. Lenders are careful, but they make qualification decisions based on averages and formulas. Formulas can't possibly take into account your unique financial position and spending patterns as well as you can. Leave a little room for the unexpected – for all the new opportunities your home will give you to spend money. Also note how your financial profile may change in the upcoming years. In the long run, your own peace of mind and security will matter most.
5. Compare mortgage rates and closing costs. These rates and costs can very significantly from lender to lender.
6. Find a lender you can trust. KnowYourOptions.com by Fannie Mae details some things to consider when researching lenders.
7. Gather your financial documentation for your lender. The documentation required will vary from lender to lender. The Chad Wilson Group Loan Application Checklist provides a list of information that a bank may need to process your loan application.
8. Get pre-approved.