Some people have a lot of experience with the housing market, whether it's due to investments or just a lot of frequent moving as income growth provides the economic breathing room needed to shop for a bigger living space. For most home buyers, though, the real estate market is unfamiliar. First, determine whether you should rent or own a home. Many people buy a home just once or twice in their lives, at times that are years or even decades apart. That means they're approaching the market as beginners each time they look for a home, which can lead to some slowdowns in the process. If you're interested in finding your dream home and getting into it quickly, there are a few things you can do before you even start to browse to get yourself on track for a speedy closing. The best part is, when you can promise to close quickly you're more likely to get an offer accepted. Let's take a look at what you need to do to be an active home buyer who can cut through the delays and close quickly. It's worth mentioning that each of these tips can work alone or as a group with the others, so feel free to use what works if you can't do everything in this guide.
1. Get Your Credit Report in Order
There are really only three factors that determine whether you can get a mortgage loan, and one of them is your credit score. If you have a troubled payment history, you'll want to spend some time rehabilitating your report before submitting any kind of application, so it makes sense to start there. Most people who haven't had to apply for a loan in a while don't know their number, so the first step is to get your credit score. Anyone with a rating above 750 is likely to get a pretty decent quote on a mortgage with the right down payment, and those above 700 will typically have no trouble getting standard mortgages at a rate that's still competitive. In the 650-700 range, things get stickier, but there are a lot of programs through institutions like the FHA to help make qualifying houses accessible. Below 650, it gets really hard to get approved, but there are a few things you can do to increase the number relatively quickly.
- Take care of any unpaid debts that appear on the report, like outstanding medical debt
- Look hard at your unsecured debt balances, and work on having individual credit accounts at or below half of their max balance
- Calculate your total unsecured debt, and even if your account balances are moderate, pay off any portion that puts you over 30% of your annual income in unsecured debt
- Look for alerts like “balance too high” on secured debts like vehicle loans, and consider early payoff on those items
It's hard to predict how quickly your credit will adjust after making each of these moves, but it should improve steadily as you work your way toward a lower total debt and a cleaner payment history. Once you've taken care of the items on the list, it's worth taking another look at the report to see where you're at before you hit the market. Be careful, though. Repeated credit checks can actually lower your score under some circumstances.
2. Build Up Your Savings for a Down Payment
The second major factor in your mortgage qualification will be the down payment. You need to be able to show a balance of available funds for the payment to get qualified, even if all you're looking for is prequalification. It's a good thing to be prequalified, too, because it basically gives you an approval for a mortgage up to a certain amount provided the house is in good repair, so you can shop with confidence that you will be able to close as long as the home inspection comes back with no major issues. The down payment determines the maximum amount the loan can be approved for, too, because it represents a percentage of the total purchase cost. Some places will let you get away with five or 10% down, but for others, you'll need to have a solid 20%. Make sure you know when you apply what your mortgage broker is going to need. Read our post: “Home On A Budget: How To Save For Your Dream Home” to get started.
3. Line Up Your Team
The third thing that determines your ability to close with the mortgage you need is the property's condition, which you need to document prior to the loan closing. That means you'll need to send in professionals to inspect the property for damage or maintenance concerns, as well as appraisers who can confirm you're buying it at the right price. If the property is worth less than the sale price, it's going to be very hard to get a loan on it without putting down enough money that the loan comes in with equity in the building. This helps you avoid overpaying, but it can be frustrating if you see what looks like a good buy only to find out you've accidentally made an offer that would put your mortgage underwater. Once you have mortgage preapproval handled, it's a very good idea to find these professionals and do the groundwork you need to do to be sure you're comfortable working with them. Then you'll be all set to call them in quickly when you have an offer accepted.
Do Your Research Before You Shop
If you want to make sure you are seeing homes you can afford, make sure you're looking at the values in the neighborhood as well as the total cost of the house. If a home looks like an outlier on the high side, it might be priced above the market for the area, which will make it hard to buy even if it's in great condition. Don't worry, though. You can always make an offer that's more in line with the value you see in the property. It might not get picked up, but it never hurts to make the offer. It also gives the buyer notice that someone is interested, just not at the original price. If the home truly is over its value, they'll eventually move down, because it won't sell if people can't get a loan for it. Be patient, be realistic, and be ready to move when you do get an acceptance. It'll make this whole process a lot less stressful.
