Discovering your price range: Steps to Homeownership

This post is the Part Two in a series - Steps to Homeownership

You've made the decision to become a homeowner and now, it's time to take the next step - qualifying for a mortgage.

Here are some key pointers to keep in mind as you undertake the process of qualifying for a loan and shopping for your first home.

760 is the key for credit that is.

Once you reach a credit score of 760 that is when the magic happens. It opens up the most loan options and those low, low interest rates. 760 is where you want to be.

Now, I'm not saying that if your credit score is below 760 you won't qualify for a loan. Even if you have a poor credit score, you can still qualify but you might pay more for it in terms of higher interest rates and only one or two loan options.

But if you start working on your credit now, you can fix it all and erase the past.

Start by visiting myFICO.com. This site will help you obtain your true credit score. If you're buying with your partner or spouse, you might want to consider qualifying for a mortgage using whoever has the lower credit score. If you try to go in together, many banks, mortgage companies and lenders will base the rate on whoever has the lower, less attractive score.

Also, you should pull a free copy of your credit reports at AnnualCreditReport.com. Make sure there are no surprise delinquencies lowering your credit worthiness. If there are, many times they'll be small bills of a medical nature. Get those paid off pronto before you apply for a mortgage.


Save, save and save some more. 

Buying a home is costlier than you might imagine. Traditionally, to get your foot in the door, you'll need a down payment worth 20 percent of the home price, however if you are a First Time Home Buyer, you can get away with a 3.5 percent down payment through the FHA Loan Program, all of which can be gifted money. This route offers the ability to bring the least amount of money to the closing table possible.

There are other ways to get around that steep 20 percent requirement with zero- or low-down loans, but those options can cost and you might have to pay extra for private mortgage insurance or take out a piggyback loan with a much higher interest rate.

Not to mention, closing costs. You'll need money to put at least 3 percent, but sometimes as much as 6 percent toward closing costs, although you can absolutely negotiate who pays closing costs (buyer or seller or between the two.)  

Pre-qualify or better yet - Get pre-approved.

It's very important to pre-qualify or get pre-approved for a mortgage before you start the formal shopping process. By doing this, you can get an idea the home you can afford and what the monthly payment will look like.

If you choose to become pre-qualified, the lender will determine how much you can borrow based on financial information you provide to the lender. Pre-qualification is useful for making preliminary decisions about price ranges, but does not assess your creditworthiness. You will need to fill out a loan application and go through the lender's loan approval process at a later date.

You could also become pre-approved for a loan. When you are pre-approved, the lender conducts a thorough credit check and verifies your employment and deposit. The lender's pre-approval is a commitment to loan up to a certain pre-determined amount. The only thing missing is the lender's appraisal of the home to confirm its value.

Why is pre-approval important at the beginning of the home buying process?

Pre-approval strengthens your offer and negotiating position. A home seller will often choose an offer that is pre-approved for a mortgage over someone whose financial picture is still in question. And yes, it is still somewhat in question when you are choose to go the pre-qualified route.

I and the team at J&M Real Estate do have a recommended lender who we know and trust. I would be more than happy to share that information with you. Just shoot me an email, give a call or leave a comment.

Plan to stay put for years.

Real estate is an investment, but only if you buy and hold. Plan to stay in your new home a minimum of five years, but more like seven before you up and sell. Generally, that is the least amount of time it takes for real estate value to recover and for you to have a good amount of equity.

And most of all.... enjoy hunting.

Buying a home doesn't have to be stressful if you choose a real estate agent and lender who you trust and like. So, find the right person for you and shop your heart away. Go out and find your perfect place.


This post is the Part Two in a series - Steps to Homeownership
Part One - The Big Decision: Are you ready for homeownership? was the first post in the series and can be viewed below.