Ready to Buy a House? Do These Three Things First

Written By Mary Beth Eastman
Last updated January 29, 2019

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April 25, 2018

Simple. Thrifty. Living.

Spring brings warm breezes, green grass and, for some, the desire for a new home. You may feel ready to buy a new home, but are you really? Before you make an offer, check that your finances are in shape.

Your credit score determines whether you will get financed for a mortgage, and unless you have significant funds at hand, you will need that loan. Although banks may differ slightly on their required credit score, most demand good credit, often somewhere in the 680 range. For loans backed by Fannie Mae or Freddie Mac, the minimum score is 620, and the lowest score needed for an FHA loan is 580.

If your credit score isn’t where it should be, work on raising it by paying down your debt and avoiding late payments on any bill. Resist the urge to make any other large purchases, and do not apply for additional credit, a process that might ding your score. You may have to postpone your home purchase, but a year of dedication can significantly improve your credit.

Wonder how much you need for a down payment? It depends on a number of factors. A traditional down payment is 20 percent or above. Your conventional lender may let you pay less, such as 15 percent, 10 percent or even 5 percent, but you will probably have to pay for mortgage insurance to protect the lender if you default. Mortgage insurance is a significant expense, so consider if waiting might be a better option. FHA loans only require a minimum 3.5 percent down payment and some special programs require 3 percent. Check to see if you qualify for any of these loans.

Remember, a larger down payment will give you lower monthly payments and cost you less in the long term. You may consider refinancing your student loans to free up cash for your down payment.

When you find the house you want, you still need more information, such as its value. An appraisal of the home takes into account comparable sales or comps. These are the prices of at least three recent sales of similar homes in the area, and they help determine what the sale price of your desired property should be. Finding comps on your own is possible, but you will need access to an MLS (Multiple Listing Service) that gives this information. If a similar home down the street sold for much less than the price of your choice, continue your property search.

Also be sure of how much home you can afford before you start looking, not after you’ve found your dream home.

Buying a new house will be much easier if you do your homework. Make certain that your personal finances are in order and then find a home that is worth your hard-earned money.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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