5 steps to take before making an offer

Checklist for more effective home buying

is different than making other purchases.

You can shop and buy most products the same day, even big-ticket items like cars.

Not so with a house. The process is longer, and there are steps every buyer should take before looking in earnest.

Home buyers who do the upfront work are rewarded with a better home and .

The planning does not have to be burdensome.

Following a simple checklist, new home buyers can make an offer on a home that suits their needs and wants without any surprises.

Plan for the future

Owning property is best suited for those who plan to keep it for several years.

Real estate transactions are expensive and can take months to complete. Closing costs for home buyers, according to the Federal Reserve, come to about 3.5 percent of the purchase price.

Selling a home is more expensive, ringing in at up to ten percent of the sale price.

Young professionals who are trying out cities or careers may find renting more suitable.

Likewise, individuals might continue renting if they do not want to spend time or money making repairs. According to the VA, homeowners should expect to spend 14 cents per square foot on maintenance, or $140 per month for every 1,000 square feet of living space.

Examine your stage of life and make sure you are ready to stay in one place for some time, and willing to provide upkeep to the home.

Check your credit report, dispute errors

Your credit score is one of the most important factors in determining your mortgage rate.

About one-fourth of consumers have significant errors on their credit reports. These errors can cost them thousands in higher rates and fees.

Since 2005, every U.S. consumer has had access to one free credit report per year from each of the three major credit bureaus, Equifax, Experian, and Transunion.

The free reports do not show credit scores, but they will tell you if the bureaus are reporting late payments, collections, and other derogatory items.

Go through your report and flag any errors. Common mistakes include accounts that belong to someone else, balances on paid-off accounts, old derogatory items that should have been dropped, and non-existent collection accounts.

Document the errors and contact the credit bureaus to have them removed. Bureaus must delete items for which no proof exists within 30 days.

Calculate your maximum monthly payment

There are many affordability calculators available to today’s consumers.

But these tools do not know your other goals, desired savings rate, or future plans.

Perhaps you have an expensive hobby or plan to work part time when you start a family.

Whatever your long-term goals, formulate the maximum amount you want to pay each month and don’t exceed it.

Factor in all the costs of the mortgage, such as principal, interest, property taxes, homeowners insurance or HOA dues, and maintenance.

Normally, you’ll begin with your current housing costs and increase that if you’re confident in your income and your debt management skills.

Mortgage underwriters want to see that your housing costs don’t rise dramatically after you buy a home. This is called “payment shock,” and you may have a harder time getting approved if the new payment is more than twice your current rent.

Choose the right lender

Before you start your home-buying journey, shop mortgage lenders. Contact at least two or three. Request a mortgage quote in writing.

Make the lenders compete with each other. Once you receive written quotes, ask one lender to beat the lowest rate and fee structure from another. There will probably be several with competitive interest rates and fees.

Rate and fees should not be the only thing you look at, however. Choose one with whom you feel comfortable discussing sensitive topics – your income, savings, credit, even marital status. Rates are important, but knowledge, professionalism, communication style and work ethic are also.

Get a written pre-approval letter

To make things go as smoothly as possible, get pre-approved for your home loan. Home sellers will respect you for doing this and will be advised by their real estate agent to accept an offer with solid financing in place.

A pre-approval is different from pre-qualification. When you pre-qualify for a mortgage, the lender asks about your debts and income but does not analyze your documentation. It’s a nice first step, but useless if you stop there.

Pre-approval requires applying for a mortgage. You complete an application, which might be submitted to an automated underwriting system (AUS), which is computerized mortgage approval software.

The lender will check your credit report as well as your pay stubs, bank statements, and other items the underwriter needs issue a commitment to lend. A pre-approval means all the buyer needs is a property.

You, the buyer, have been approved and can start shopping.

Check your home-buying eligibility

Mortgage rates are low and home buyers are able to afford more in today’s lending environment.

Get started on the pre-shopping checklist now so you will be ready to make an offer on the right home.