Buying a house used to be pretty easy, right? You could tell your mortgage broker basically whatever you wanted to and you were well on your way to a Jumbo ARM and a small slice of Arizona to call your own! That was because the whole industry was messed up, in virtually every way imaginable. It’s much more difficult to get a mortgage and a house these days, but that obviates the need for thorough advice to young homeowners that you might have seen a few years ago: don’t buy too much house, be wary of adjustable rate mortgages, etc. You simply won’t qualify for a mortgage if you try to outdo yourself these days.
That said, there are things you can do to increase your odds with a lender. For example, keep your credit impeccable for the year preceding your house hunt. Get all your debts paid down as far in advance as you can. Once you’ve cleaned up your credit, you can find out how much a lender will pre-approve you to borrow, and then you have a working budget from there. Not only will it be helpful to know how much house you can afford, having good credit will get you lower interest rates on your loan. When you’re paying a mortgage off for 30 years, just a few basis points can mean a difference of thousands of dollars, depending on the size of your loan.
Before anything happens in your house hunt, you should make absolutely sure your credit report is as clean as you can get it. Only then can you really figure out your budget.
And in order to figure out your budget, go get pre-approved by your bank or credit union before you shop. Only then will you have any sense of exactly how much house your lender thinks you can afford, and this will be crucial to keeping your expectations realistic. That way you won’t fall in love with a house you simply can’t afford, and make all sorts of mistakes to bring it within your reach. It’s okay to wait; if it doesn’t feel okay to wait, you’re probably in a bubble.
Investopedia has an excellent and thorough guide for first-time buyers that covers all aspects of this complex, convoluted and downright American rite of passage.
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