Friday, December 2 , 2016, 11:29 pm | Fair 43º



Tim Taylor: Dos and Don’ts for Preparing to Buy a Home

If you’re considering purchasing a home, here’s what you need to do.

Tim Taylor
Tim Taylor

Make a list of items most important to you. For example, the type of home: a single- or multi-family unit, the number of rooms, the location and the proximity to schools, if you have or plan to have children.

Also, think about how long you want to reside in the home. Increasingly, homebuyers tend to move in and then move up.

Prepare yourself financially. Avoid any major purchases until after closing, regardless of your credit standing. Any increase in debt-to-income ratio reduces your purchasing power. Things such as an expensive monthly car payment could make a bank decide you cannot afford the home.

Also, you want to preserve any cash reserves you have. Banks prefer a consistent cash cushion of approximately three times the amount of your monthly payment. Review your credit reports at the major credit bureaus (Equifax, Experian and TransUnion) and search for anomalies. Avoid consolidating bills and closing credit cards.

This can lessen your cumulative credit history and lower your FICO score. Don’t change jobs. Lenders prefer that you’ve been working at least two years for your current employer.

Get the necessary paperwork in place. When you apply for a loan, you’ll be asked to provide the last three months of deposit account statements for bank accounts, stock or mutual fund accounts, pensions and other retirement accounts such as a 401(k), IRA or ROTH IRA. Other important documents include tax returns and W-2 forms for the last two years and, if applicable, divorce papers. If you’re renting, prepare copies of the last 12 months of rent payments.

Get pre-approved for your loan before you begin house hunting. Pre-approval will determine how much home you can purchase. It will also increase your bargaining position. Getting pre-approved sets you apart and signals to the real estate agent and the home seller that you are dedicated and serious, and can afford the home you want.

If you would like to learn more about preparing to purchase a home and getting pre-approved, please call me today at 805.898.4222 or click here.

Tim Taylor is an area manager for Prospect Mortgage.

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