6 Things You Need to Know Before You Buy a Home
1. Don’t buy if you like to move...If you are a person that loves to be in a new place every couple of years, buying may not be for you. To avoid paying capital gains tax, you must live in a home for at least 2 years. With all the transaction costs involved in selling a home, it may be at least 5 years before you can make a move without losing money.
2. Optimize your credit...Check your credit scores from all 3 credit reporting agencies, Transunion, Equifax, and Experian. Many mortgage lenders use the middle score in determining your rate.
Keep credit card debt at 30-40% of the limit, and don’t close any accounts after you pay them off, as its better to have open accounts with little or no balances.
The last 6 months of your history is the most critical. If you have any late pays or other credit negatives in the last 6 months, make sure you pay on time for the next several months to establish better payment history.
Don’t buy anything on credit or open up new credit cards before shopping for a loan. These new purchases will count against your score.
3. Shop for your loan...There are lots of lenders out there with lots of financing options. Some will offer freebies and bonuses, but these are usually made up for somewhere in the loan. Talk to at least 3 different lenders to make sure you are getting the best possible deal.
4. Be careful when paying points...Many lenders offer the option of paying points, or fees, up front in order to gain a lower interest rate. Today’s mortgage interest rates are so low that paying points will usually not save you much in the way of interest. This is especially true if you don’t plan to stay in your home for at least 7 years.
5. Drive by your potential homes at night...You may be surprised to see the difference in a neighborhood at night. Are there 50 cars parked up and down the street? Is there a lot of traffic in front of the house? Are the streets well lit? These may seem like small details, but could end up being the reasons you are ready to move out just a few months after you move in.
6. Shop for homeowners insurance...There are a large number of homeowners insurance providers out there. You can receive 5-15 percent discounts for having auto and homeowners insurance with the same company. Raising your deductible, staying with the same company for several years, and being 55 years or older can also earn you discounts