How do I prequalify for a home loan?
To prequalify for a home loan, follow these steps:
- Pay down your debt. Do you have high credit card balances? Owe money on hefty student loans? When determining how much house you can afford, lenders consider your mortgage payment as well as your monthly expenses, so pay off as much debt as you can.
- Check your credit rating. If there are any inaccuracies on your credit reports, make sure they get corrected. If you need help rebuilding your credit score, contact an accredited financial counselor.
- Save up. Depending on the type of loan you get, you’ll need to contribute between 3 and 20 percent of your new home’s purchase price as a down payment.
What should I look for when buying a house?
When you find a house you adore, it’s easy to focus on the positive. But it’s important to cast a critical eye as well. As you walk through your potential dream home, check for:
- Good “bones.” Don’t get distracted by cosmetic details such as paint and carpeting. Pay attention to structural issues like wall cracks, uneven floors, or lopsided window frames that may indicate problems with the house’s foundation.
- Layout constraints. Consider whether the overall floor plan makes sense for you and your family.
- Roof condition. Is the roof sagging? Shingles missing or damaged? Repairs could be pricey.
- Working parts. Try the light switches. Flush the toilets. Turn faucets on and off. Run the heat and/or air-conditioning systems. Open and shut windows and doors.
- Odors. If you notice a musty smell, mold could be an issue.
- Cleanliness. Whether a house is pristine or dirty may provide a clue to the homeowners’ general level of care for the home during the time they’ve lived there.
If you end up making an offer on the house, a professional inspection can confirm any major problems—and reveal things you didn’t notice. Depending on the market, you may be able to negotiate with the seller on the repairs.
How do I buy in a seller’s market?
Buying a house in a competitive market requires extra strategy. Shrewd moves include:
- Think fast. In a seller’s market, homes go quickly. Hesitate to make an offer, and you’re likely to miss the opportunity.
- Don’t lowball. Offer at least the listed price. Bidding wars are common in a seller’s market. Consider looking at homes priced a bit below your budget so you can bid up.
- Work with a savvy real estate agent. Hiring your cousin who just got her real estate license is tempting. But in a seller’s market, an experienced professional will likely produce better end results.
- Provide loan pre-approval and proof-of-funds documentation to the seller, so it’s clear you’re a qualified buyer.
- Put down a big earnest-money deposit, which is a “good faith” deposit that’s part of your down payment. Earnest-money deposits usually range from 1 to 3 percent. If you can go higher, do it.
- Don’t be greedy. In a buyer’s market, you may be able to persuade the sellers to include the refrigerator or make small repairs as a condition of the sale. In a seller’s market, avoid asking for extras.
What should I know about making a down payment?
A down payment is a partial payment for a home that you pay out of your own pocket—usually from 3 to 20 percent of the sale price, depending on your credit score, the type of mortgage you get, and the value of the home. By making a down payment, you’re letting your mortgage lender know that you’re a serious, financially stable buyer. If you put down less than 20 percent, your lender might require you to buy private mortgage insurance.
You will most likely make your down payment in two installments. You make the first payment, called “earnest money,” before you sign the purchase contract. Earnest money (usually 1 to 3 percent of the home’s sale price) goes into escrow. A third-party escrow company holds the funds until the sale is final. The second payment is due at closing. The bigger your down payment, the lower your monthly mortgage payment will be.