May 17, 2021
When buying a home, you may have many things on your wish list from the number of bedrooms and type of floorplan to your most-desired neighborhood amenities. Envisioning a home that checks all the boxes on your list is exciting, and walking into “that” home for the first time can take your breath away.
In all the home buying excitement, it may be easy to lose track of another list: your home buying financial checklist. Using this list will help you take control of the financial end of choosing and buying a home so that nothing falls through the cracks.
Here’s what we suggest you include on your homebuying financial checklist:
1. Know Your Credit Score… And raise it if you can!
Because a mortgage is such a large loan, borrower qualifications for a home loan can be more stringent than small personal loans. And the better your credit, the easier it is to qualify for the loan and the best rates.
Your credit score will determine the kind of home loan rate you qualify for. The most common type of credit score is the FICO score, which spans from 300 to 850. If your credit score is 760 or higher, you’ll have access to the best interest rates and loan options. Many home loans aren’t available to borrowers with scores below 620. Requesting your complete credit report, including your score, from Experian, Equifax and TransUnion is great to do once a year and especially before seeking out a major loan like a mortgage.
Once you’ve learned your credit score, you can determine if it needs any help. If your credit score needs improvement before applying for a loan, spend several months making sure you pay bills on time and pay down large debt balances.
2. Save for a down payment
While home loans are sometimes offered with little or even no money down, it’s generally a good idea to make a down payment. This reduces your monthly payment and can even help you get better loan options. Be sure to set aside enough additional funds to cover closing costs.
3. Pick the right price point
With homes available in such a wide variety of price points, you’ll need to narrow your search based on what you can afford. Start by looking at your household budget, including all income sources and all regular expenses, which can help you see in black and white what you have to work with. Then estimate your debt-to-income ratio by adding up all your monthly debt payments – plus estimated monthly expenses related to owning a home, like taxes, insurance, and homeowner’s association fees. (Hint: UCU’s online calculators can help). Divide your total monthly debt expenses by your total monthly income. If it’s about 43% or lower, you’re a good candidate for a mortgage. In this current real estate market, most properties are selling above asking pricing, you may need to look at homes below what your price point is, in order to make a reasonable market offer on a home.
4. Get pre-approved
Another simple way to determine the right price point is to get pre-approved. Lenders like UCU make the process easy and can get you an answer quickly to help you start shopping right away.
5. Shop with a qualified real estate agent
You may be tempted to go it alone in an attempt to save money, but it’s generally not a good idea. A qualified and experienced real estate agent offers invaluable guidance through the process and can actually save you money by offering expertise and guidance for choosing a home that’s right for you.
6. Finalize the purchase
With a purchase contract in place, you’re in the home stretch. This means finalizing your loan, getting a home inspection, homeowners insurance and appraisal, and preparing for closing. If the inspection reveals any concerns, negotiate repairs through your real estate agent. Once this process is complete, you’ll have a few weeks to prepare for your move.
On or just before the closing date, you’ll do a final walk-through to ensure negotiated repairs were made. At closing, your real estate agent and lender will guide you through the process of finalizing all your paperwork.
Most importantly, if you finance your home with UCU, you’ll have a mortgage lender by your side through the entire process, but having this list can help you navigate through the financial end of choosing and buying a home so that nothing falls through the cracks.
In the end, you’ll receive the keys to your new home. Don’t forget to change the locks! You made it. Congratulations!
Are you a first time home buyer? Learn everything you need to know about the home buying process at First Time Home Buyer course. Completion of the course makes you eligible for the $3,500 Maine State Housing Advantage grant to apply towards closing costs if you qualify and use a Maine Housing loan.