Step 1 of 6
The first step in purchasing a home is to determine your timetables for the purchase. Simply stated, your purchasing timetable is the time it will take to move into your home. You will note that the title of this chapter is timetables not timetable, that's because there are two timetables you will need to be concerned with when initiating the purchase process:
1)Your Financial Timetable
2)Your Personal Timetable
Your Financial timetable refers to your ability to purchase a home from the finance side of the picture. More simply put- will a lender give you a mortgage? The two most common issues that may effect or delay the purchase of your dream home are sufficient downpayment and credit issues. If you can satisfy the lender guideline for the following two issues you are ready to start looking for your home.
a) Sufficient Downpayment
Mortgage programs have a wide variety of downpayment requirements so your item of business is to determine the amount of your downpayment. First review and list your assets on a piece of paper, then determine the most desirable amount you would like to put down on your new home. As with all decisions you should start with the perfect scenario and then work from there.
If your downpayment funds are limited the size of your downpayment may effect the purchase price of your home as most mortgage programs have minimum downpayment requirements.
The average conforming mortgage program has a minimum downpayment requirement of 5%. If you only have $10,000 available for downpayment then your purchase price will be limited to $200,000.
If you have significant downpayment funds for the purchase then you are ready to go, if not, then you need to look at your options. Your ability overcome this obstacle will determine when you can put down the required funds and obtain a home. If you can obtain a gift from a family member great, if not, you will need to devise a budget and save the funds needed. This is where your purchasing timeframe can be effected.
b) Credit Issues
Credit issues may come into play when deciding on your timeframe to purchase. Credit issues are usually divided into two areas: credit problems or too much debt.
Often potential homeowners have past credit issues that effect their ability to obtain a mortgage. Two common items are defaulted student loans and charged off credit cards. While these two credit issues may not exclude you from obtaining a mortgage they will exclude you from the most desirable and beneficial loan programs.
Charged-off or Defaulted Loans
If your credit profile contains issues such as charged off loans or defaulted credit cards you may want to choose to push back your purchasing timetable until you can take care of your credit issues.
Defaulted loans, if paid prior to closing may not effect your obtaining a conforming loan. If the problem occurred many years ago (3-7) and your credit has been good since you may only need to pay off the debt. If you do not have the ability to pay off the debt you will then need to get on a payment plan. In most cases entering into a payment plan and sticking to it for 12 months will show your lender that you are a good risk.
Recommendation: if you have credit issues do not assume you cannot get a loan. The reverse is also true- you should not assume you can get a loan. Make sure you review your credit issues with your loan officer, at the time of application. By doing this you will be able to draft a letter of explanation and have it presented along with your mortgage application. Its much easier to convince an underwriter to approve your loan prior to their underwriting it as it is to change their mind after they've denied it.
To Much Debt
If your credit profile shows that you have too much debt to obtain the desired mortgage then you may have to adjust your purchasing timeframe until such time as your debt load does not interfere with your obtaining a mortgage. Sometimes the solution for having to much debt is to simply reduce your downpayment and pay off some debt. If funds are an issue then it may be necessary to budget your funds for a period of time and pay off or pay down your debt load to an acceptable level.
Recommendation: make sure you review your debts, in full, with your loan officer. He/she will be able to recommend the best plan of action for reducing debt.
Once you've determined that you have a sufficient downpayment and acceptable credit profile you have succeeded in laying out your financial timetable, in other words you now know when you will be able to close on the home from the financial end.
Your personal timetable refers to the date on which you would like to move into your new home from a personal or social point of view. Factors that should be considered include some of the following:
The key thing is to get organized, write out your timetable to purchase and allow sufficient and reasonable time for each step of the process.
Your move may be dependent on a relocation
End of the school year:
You will hear Real Estate Brokers talk about the spring market. The spring market is typically a hot time to sell a home because many buyers choose the timetable of purchasing their home in April, May,and June; and then closing on the home in June, July, and August, so it does not interfere with the children's school year.
Many people do not like to show their homes during the holiday season of November and December. Think about your holiday plans and the repercussions from complicating them with a move.
You may need consider such factors as these: receipt of a yearly bonus, preferable time to sell mutual funds or securities, limitations on liquidating or borrowing from a 401K.
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