Three Things You Need To Think About Before Buying A House

With the housing market stabilizing those who can afford to buy a house might want to start looking around.  The home buying process can be a mighty complicated process, costing a lot of money and time.  To make it easier, you need to plan ahead.  If you are starting to think about buying a house, here are some things you might want to consider before looking at houses.

The Down Payment

You will need to put a down payment down if you are looking for a house.  Before the real estate crash in 2007, mortgage lenders were advertising ninja loans and zero down payment mortgages all over the place.  Those loans no longer exist.  Mortgage lenders have taken huge precautions to make sure that mortgage default is marginalized.  That means you will have to put 20 percent down to avoid paying mortgage interest.  If you do not have 20 percent down, you can still get a mortgage but will have to pay mortgage interest.  If you can only afford less than 5 percent down, you should go with FHA loans.  FHA loans require a minimum of 3.5 percent down and do have mortgage interest attached.

However, the criteria for mortgage approval are a lot less stringent.   So before you start looking at houses, decide if you want to pay that 20 percent down to avoid mortgage insurance or pay less of a down payment and pay mortgage insurance for the first several years of your mortgage.

Credit Score

In order to buy a house you will need a good credit score.  Before 2007, you can buy a house with bad credit.  That is no longer the case.  The landscape for lending practices has changed drastically, especially with large loans such as mortgages.  Six months before you start looking at houses, you will want to start thinking about all the things you can do to increase your credit score.  The better your credit score, the better the rates.  A credit score of 740 or beyond is usually good enough to get you the prime mortgage rate of any mortgage lender. Improving your credit score quickly isn’t hard at all.  First off, you will need to pay off a large chunk of your credit card debt.

Even if you do have a good credit score, you can still get denied if lenders see too much credit card debt on your credit report.  Mortgage lenders do not like to see revolving credit card debt.  The second thing you can do to improve your credit score is to fix blemishes on your credit.  If you have late payments or collections on your credit report, it is best to challenge those blemishes by writing to the credit bureaus.  It is not unusual to see your credit score jump by more than 100 points after doing those two things.

Your Ideal Living Situation

Looking for houses do and should take up the largest portion of your time when buying a house.  Buying a house is no doubt the largest purchase most people will make during the course of their lives.  Because it is such a big purchase, you will need to do your due diligence and to make sure to find a house that you really want.  However, before even looking at houses, you should have a rough idea of what you want in a house.

If you are raising a family then you probably want a house in the suburbs that has a safe neighborhood with a great school system.  If you are single, you may want to think about getting a house close to colleges or close to the city so it is easier to find tenants.  It is best to think about these things before looking for houses so that you are not wasting your own time and the time of the real estate agent.   Although buying a house can be a gratifying experience—do know that it is a mighty big decision and can have tremendous financial repercussions.

That is why it is best to prepare in advance when you know that you will be looking for a house in the near future.  That way you can save both time and money once you are actually in the process of buying a house.  Happy house hunting!

Trent is an amateur real estate investor.  If you like real estate investing or are interested in becoming a real estate agent or learn about real estate investing basics, visit HowToBcome.

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