6 Must-do’s Before Buying a Home

You may think you’re ready to be a homebuyer, but have you done your homework? Do you know about credit score requirements? Are you familiar with the different mortgage options that could be available to you?

Have a checklist

Whether you are a first-time buyer or an experienced owner, buying a house requires a “preflight check,” in the words of Barry Zigas, director of housing policy for the Consumer Federation of America.

Read on for Bankrate’s six-item checklist, including tips on the types of savings you need, plus advice about what matters beyond purchasing a home at its resale value.

“It’s a brave, new world with respect to credit requirements for mortgages,” says John Ulzheimer, president of consumer education at CreditSesame.

One old rule still applies: The higher your credit score, the lower your monthly payments.

“Below 660 or 680, you’re either going to have to pay sizable fees or a higher down payment,” Zigas says. And that’s pretty much the cutoff score for getting a mortgage, he says.

Higher scores wanted

Vicki Bott, a former official at the U.S. Department of Housing and Urban Development, says that her office noticed much the same thing. “While there are many qualified borrowers in the 580 range, the market today is probably (looking for) 640 to 660, at a minimum,” Bott says.

On the other end, a score of 700 to 720 will get you a good deal, and 750 and above will garner the best rates on the market, Ulzheimer says.

Improve your chances by: pulling your credit reports and ensuring you’re not being unfairly penalized for old, paid or settled debts, Zigas says.

Stop applying for new credit a year before you apply for financing. And keep the moratorium in place until after you close on your home, Ulzheimer says.

The buyer’s mantra: Get a home that’s financially comfortable.

There are various rules of thumb that will help you get an idea of how much home you can afford. If you’re using FHA financing, as almost one-fifth of buyers get FHA-insured loans, your home payment can’t exceed 31 percent of your monthly income. But with some mitigating factors, FHA will let you go higher.

Realistic debt-to-income ratio

For conventional loans, a safe formula is that home expenses should not exceed 28 percent of your gross monthly income, says Susan Tiffany, director of personal finance information for adults for the Credit Union National Association.

For a rough assessment of how much house you can afford, check out Bankrate’s new house calculator.

Improve your chances by: trying on that financial obligation long before you sign the mortgage papers, says Tiffany. Before you home shop, calculate the mortgage payment for the home in your intended price range, along with the increased expenses (such as taxes, insurance and utilities). Then bank the difference between that and what you’re paying now.

Not only does it allow you to build a nice nest egg, but “you can back away from it,” or scale back, if the payments start to pinch, she says.

Depending on your credit and financing, you’ll typically need to save enough money for a down payment — somewhere between 3 percent and 20 percent of the home’s price.

If you’re using FHA financing, then you need a credit score of 500 or higher. And in the 500 to 579 range, if you can find a lender, you’ll have to put 10 percent down instead of 3.5 percent.

One exception: Veterans Affairs loans, which require no down payment.

Don’t forget loan fees

Another cash expense: closing costs. Whatever your loan source, you’ll also need money to pay closing costs, which run (depending on where you live ) from $2,300 to $4,000. Get the average closing costs in your state at Bankrate’s closing costs map.

Improve your chances by: banking your own money and seeking down payment assistance, Tiffany says. Often it’s location-based or tagged to a certain type of buyer, like first-timers, she says. Search online with the city name, then the county name, along with word combinations such as “down payment assistance,” “first-time homebuyers” and “homebuyer’s assistance.”

In a buyer’s market, you can also negotiate to have the seller pay a portion of the closing costs.

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