I meet with clients every day who want to take advantage of historically low interest rates and achieve the dream of home ownership. Unfortunately, sometimes potential buyers put the cart before the horse: they find their dream home online, attend numerous open houses, begin a Pinterest board with landscaping and interior design ideas, yet they have not taken the time to get their financial lives in order.
So how do you prepare for buying a home in Richmond, VA? Here are a few steps you can start today that will position you for a successful home purchase.
–Start Early. The process of buying a home should begin one to three years before you are ready to sign on the dotted line. I would suggest contacting a mortgage lender 12 months prior to your house hunt to review credit, discuss various loan programs, and develop a down payment goal.
–Establish a Good Employment History. Lenders like to see a two year employment history without gaps. College may be counted toward your employment history, but you will likely have to provide a transcript to your mortgage lender.
– Establish Good Credit. At least two years out from the time of your initial meeting with a lender (three years before you plan on purchasing) establish or maintain two-three credit card/installment accounts. Keep the balance below 30% of your credit limit and pay off the balance every month. A 24 month history should be sufficient to establish good credit.
– Manage Credit Limits. If you already have accounts, pay them all down to below 50% of their balance. Once they are all at 50%, work on getting them to below 30%.
– Save for a Down Payment and Closing Costs. There are loan programs which allow you to finance up to 100% of the purchase price, but I recommend putting at least 3% down. If you don’t put at least 20% down, keep in mind you will have to pay mortgage insurance every month which could be several hundred dollars depending on your loan size. Closing costs typically range from 3% to 6% of the loan. You may be able to negotiate with the seller to pay your closing costs and/or a lender rebate to subsidize closing costs, but it’s best to be prepared to foot the bill on your own.
This was originally a guest post on Richmond realtor Shannon Milligan’s page. I encourage you to check out her site for great information on buying or selling your home in Richmond, VA. Thanks, Shannon!