First Time Homebuyer: Steps to Success (Step 1)
It may not seem like it, but there is a process to buying a home and taking certain steps in the proper order just about guarantees success. Taken out of order – putting the cart before the horse – the steps are inefficient and counterproductive, and the process becomes chaotic.
Remember when you were learning algebra? If you tried to take a shortcut, you would get the wrong answer. The steps are there for a reason, and they simply must be followed, in order, if you’re to be successful.
Over the next three posts, we’ll take a look at the three steps you must take before looking at even one home for sale.
Today we look at the first step: Figuring out where you stand financially. If you’ll need a mortgage loan, this is the most critical step in the process and it can make or break your house budget.
Step 1: Check Your Credit
When faced with a loan application, the first task on a lender’s to-do list is to order the applicant’s credit reports and determine his or her credit score. This score is produced by Fair Isaac Corporation – and is known as your FICO® score. This score not only reflects your credit risk but will be used in the determination of the interest rate you’ll be offered.
Calculated from the data in your credit reports, FICO® credit scores range from 300 to 850 and FICO® uses five categories in the calculation:
- Payment History: FICO bases 35 percent of its score on your payment history.
- Account Balances: 30 percent of your score is based on your current account balances, listed in your credit reports.
- Length of Credit History: This category is used to determine 15 percent of your credit score.
- New Credit – 10 percent of your credit score depends on new credit obtained.
- Types of Credit – the types of credit you use accounts for the final 10 percent of your FICO® score.
This formula is not set in stone. People who have short credit histories – young people for instance – are weighted differently than those with long credit histories.
You are entitled to a free copy of your credit report from each of the three major credit reporting agencies once a year. Make sure you order the reports at AnnualCreditReport.com, the only site authorized by the federal government.
Next time, when we take a look at Step 2 in the home-buying process, you’ll learn how to clean up your credit and raise your score.
Selling the Home Yourself: Is it a Good Idea?
Selling in Winter? Make your Home the Hottest on the Market
Selling the VA-Financed Home
The Brag Book
The Danger of Overpricing your Home
The Pet Predicament
The Pros and Cons of Financing the Buyer
The Ultimate Guide to Title Insurance
Three Critical Steps in the Home Appraisal
Three Ways to Prepare for the Appraiser
Top Ten Ways to Scare Away Buyers
Types of Listing Agreements
Using the Psychology of Color to Stage Your Home
What can go wrong during the Escrow Period?
What Closing Costs to Expect when Selling a Home
What is a Buyers Market?
Who Pays for Pest Inspections for FHA Loans?
Why is my Home Not Selling?
Your Part in the Home Sale Process
2 Things to Consider Before Buying a Townhome
2 Things to Know about Home Inspections
2 Tips for the Luxury Home Buyer
3 Common Home Buying Myths
3 Important Aspects of the Purchase Agreement
3 Reasons to Think Twice about a Home
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