Thinking of buying a home? If so, there are 3 essential steps you must take before you even begin your home search. Otherwise, you may be setting yourself up for disappointment or selling yourself short.
1. Obtain a copy of your credit report and your credit score. Better yet, get these from all of the 3 major credit reporting bureaus: TransUnion, Experian, Equifax. Under federal law, you are entitled to get a free report once a year. AnnualCreditReport.com is the official site to order your free report. Bear in mind, this does not include your credit score, which you’ll have to pay for. It’s about $8 per company.
When you ask for a copy of your credit report, it will not count as an “inquiry.” Inquiries from third parties do have an adverse effect on your credit score, especially if there have been several in recent months. This is why it is best to get your own report and make sure it’s in order before a lender orders one for you.
2. Review all of your credit reports carefully, and make sure all of them are accurate. If you notice something you don’t recognize, investigate and make sure it is legitimate. If you see something that you know is not yours, that has been paid or is incorrect, you can formally dispute it.
Don’t just indicate it’s disputed in your report. If there is a notation in your credit report that a debt is disputed, the lender will require the dispute to be removed before approving any loan. You’ll want to contact the creditor directly and do what is required to get the creditor to correct or remove the disputed debt. Before you dispute any debt or account on your report, you might want to consult with or hire a credit repair specialist to help you with settling the disute.
Ideally, all of your credit reports should be accurate before applying for a loan. Otherwise, you could be denied a loan or not be qualified for the best one, or simply delay your approval.
3. Meet with a reputable local lender to get pre-qualified for a loan. When you meet with the loan officer for the bank or lending company, bring copies of your credit report(s) and score(s), information and verifying documentation regarding your employment, income (pay stubs, tax returns), monthly household expenses, and monthly debt. Your loan officer may have a questionnaire or list of things they will need from you, which will help you gather the necessary information.
Your loan officer can then give you a good idea of the type of loan and amount you might qualify for. This is the pre-qualification process. Before issuing a formal pre-qualification letter for you or your real estate agent, your loan officer will most likely need to pull your credit on behalf of the lending company, which will be an inquiry. That is why it advisable to get your own first.
At this stage, you are ready to start looking at homes, knowing what you can afford, the loan you can get, and that you can actually buy