Part 2 of our “First Time Home Buyers” Series
Determine how much home you can afford
Before you start looking for your dream home, you need to know what’s actually within your price range. Use this home affordability calculator to determine how much you can safely afford to spend.
Check your credit and pause any new activity
When applying for a mortgage loan, your credit will be one of the key factors in whether you’re approved, and it will help determine your interest rate and possibly the loan terms.
So check your credit before you begin the homebuying process. Dispute any errors that could be dragging down your credit score and look for opportunities to improve your credit, such as making a dent in any outstanding debts.
To keep your score from dipping after you apply for a mortgage, avoid opening any new credit accounts, like a credit card or auto loan, until your home loan closes.
Compare mortgage rates
Many home buyers get a rate quote from only one lender, but this often leaves money on the table. Comparing mortgage rates from at least three lenders can save you more than $3,500 over the first five years of your loan, according to the Consumer Financial Protection Bureau. Get at least three quotes and compare both rates and fees.
As you’re comparing quotes, ask whether any of the lenders would allow you to buy discount points, which means you’d prepay interest up front to secure a lower interest rate on your loan. How long you plan to stay in the home and whether you have money on-hand to purchase the points are two key factors in determining whether buying points makes sense. You can use this calculator to decide whether it makes sense to buy points.
Get a preapproval letter
You can get pre-qualified for a mortgage, which simply gives you an estimate of how much a lender may be willing to lend based on your income and debts. But as you get closer to buying a home, it’s smart to get a preapproval, where the lender thoroughly examines your finances and confirms in writing how much it’s willing to lend you, and under what terms. Having a preapproval letter in hand makes you look much more serious to a seller and can give you an upper hand over buyers who haven’t taken this step.