Post from MilitaryByOwner
If buying a home is even remotely a possibility, you’ve likely jumped online and began picking out houses that fit the description of your “Dream House” Pinterest Board, right? Cape Cod style, check. Spa bathroom, check. Large windows, check. Major curb appeal, check, check.
The accessibility of online collections of houses for sale make the buying process seem quick and easy. But don’t be fooled, there’s a lot of behind the scenes prep that has to be done months before the actual price negotiation begins — from cleaning up your credit report to assembling the stack of financial paperwork your lender requires.
Give yourself plenty of time to set yourself up for success buy tackling each of these steps for preparing to buy a house.
1) Review Your Credit Report And Credit Score
When is the last time you thoroughly read over your credit report and looked at your credit score? If its been awhile, make yourself some coffee, head to annualcreditreport.com and scour your information to make sure it’s accurate.
Transunion, Equifax, and Experian all offer their versions of your credit report and supply the resolution processes for anyone who needs to make changes or disputes. A bad credit report directly affects your credit score, which directly affects your chance to qualify for a mortgage with a low interest rate.
A FICO score is the rating system that is typically used for calculating mortgage rates, but it is different from other credit score tabulations. Good guidance suggests to aim for a FICO score of 740 and above for the best mortgage options. Most people have many credit scores that are calculated by other credit report agencies, and their formulas differ.
2) Take A Holistic Look Of Your Overall Finances
Becoming approved for a loan is just one financial component to becoming a homeowner. A good place to start is to recognize how easy it’s been providing for your current rent or house payment now. Was it a struggle or could you handle more for a new house?
The amount of money it takes to be sufficiently prepared for the process varies for everyone, but expect to have thousands in cash available for items like down payments, Private Mortgage Insurance, Homeowner’s Insurance, and immediate repairs and updates. (If there was ever a past conversation with relatives about a gift of money for a home purchase, this is the time to revisit the offer!)
Don’t be tempted to buy a new car, open a new credit card, or add other lines of credit, because these will affect your credit report and how your scores are calculated.
3) Begin Asking Friends And Family For Real Estate Agent Referrals
One size does not fit all in the case of a real estate professional. It’s just nature that some personalities fit better with others. It pays to take the time to interview several and see who clicks with your needs the best. There are some non-negotiables, however. They must have expert, if not direct experience with military members, their finances, and VA Loans. VA Loans are popular for good reason, so your agent should have more than sufficient knowledge to answer your questions.
If your agent says they understand mil-life, but they don’t know how to correctly use key acronyms like BAH or LES, say thank you very much and walk away.
4) Assemble The Necessary Financial Documents
Depending on the lender and their systems, some, if not all, of these will be sent electronically, so get friendly with your computer’s scanning options and email. Never send in or give away originals of any of this information.
- Tax returns for the past two years.
- The last two LES statements or pay stubs.
- Two months’ worth of bank and asset statements for accounts involving retirement, stocks, bonds, mutual funds, etc.
- Driver’s License and Military ID.
This doesn’t seem like a long list, but not many of us have this paperwork sitting around or even remember passwords to access IRA accounts! And by now, you know to never rely on any military document being available at a moment’s notice. Expect the gathering process to be delayed a time or two for various reasons.
5) Research Mortgage Lenders And Get Preapproved For a Loan
Research your lender like you would your real estate agent — word of mouth. After reviewing your situation, your agent will likely have a few lenders they can refer to you. If you’ve been with a bank for years, they should also have names to offer. Remember you’re shopping for a good deal, so investigate two or three choices and what they offer.
Pre-approval is important because it decidedly shows you what you can and cannot afford. You might think you have the money to afford one bracket of homes, but your lender could have other ideas. A pre-approval also shows sellers you’re serious and ready to go. No Sunday open house shoppers here.
Whether you’re buying home for the first time or you’re moving into real estate mogul category, the process and paperwork is the same. Once you have all the documents pulled together, it’ll be easy to go back and refresh your memory later as to what is needed.