Thursday, March 29, 2007

3 Steps to take before you purchase your first or next home

This article will outline the 3 steps to take before you buy your first or next home

A little time spent shoring up your credit, crafting your budget and organizing financial documents will go far in smoothing the way to a home purchase. Ideally, you can start working on your home-buying project before you even start shopping for homes. Keep in mind that most buyers take eight weeks to actually shop for a home, according to a survey by the National Association of Realtors. Your financial prep work should start well ahead of those eight weeks.

"My advice is to start to talk to your local Realtor six months ahead of time," says Pat Vredevoogd Combs, a practicing residential broker in Grand Rapids, Mich., and president of the National Association of Realtors. "Most have a good handle on mortgage people in the area. And, there are a lot of really cool mortgage programs out there for first-time buyers."

3 steps to take before applying

1. Get your credit in shape.
2. Organize your documents.
3. Check your budget.

For example, Combs says some local governments will offer interest rate or down payment subsidies to buyers who agree to buy a home in certain areas. And governments or employers may subsidize teachers, fire fighters, police officers, nurses and other service professionals who have difficulty affording a home in high-priced communities. A hospital trying to recruit and retain nurses, for example, might offer a down payment loan, which is forgiven and turned into a grant if that nurse remains employed with the hospital for several years, says Combs.

Before you begin your house hunting, there are three important steps to take to make sure you are eligible for the best interest rates and to make the mortgage application process a breeze.

1. Get your credit in shape: Order your credit reports
One of the first steps any prospective buyer should take is to take advantage of the free credit reports everyone is entitled to request annually, thanks to federal law. While there are many sites on the Web offering "free" credit reports, many of those offers require that you sign up for a free trial of a credit-monitoring service that will cost money if you fail to cancel during the free trial period. The official site where you can get free, no-strings-attached credit reports annually from the Equifax, Experian and TransUnion credit bureaus is You can receive one free credit report from each of these three agencies every year.

David Reed, an Austin, Texas, mortgage banker and author of "Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You," says you should review each of those reports for errors. There could be mistaken entries noting late payments or account information that belongs to someone else. Common names sometimes get mixed up on credit reports, as do "Juniors" and "Seniors" in the same family.

"I see that a lot," says Reed.

If you spot an error, you should write to that specific creditor and request a correction. Bankrate has a work sheet to help you request and track corrections on each of your credit reports.

How's your credit?
While paying down your credit card balances will improve your financial picture, this is not the time to close credit accounts because reducing the amount of credit available to you can actually lower your credit score.

"Don't assume you should just get rid of it," says Combs.

If you already own a home and have an existing home equity line of credit, or HELOC, Combs recommends that you not get rid of it in preparation for a new home purchase. "I think you ought to leave it alone. Sometimes buyers are going to need it; they can use it as an easy bridge loan (to cover the down payment temporarily until you sell the old home) so they don't have to go through the trouble of getting one."

2. Organize your financial paperwork
You also should gather up all the financial documents that a lender will need when you submit an application. They include copies of your income tax returns, W-2 wage statements, paycheck stubs, bank and investment account statements, divorce decrees and child support documents and recent credit card statements. Having those documents handy will also help you put together a realistic budget and help you figure out what you really can afford to pay as a down payment and toward subsequent monthly payments for mortgage principal and interest, plus property taxes and insurance.

Documents to gather:

• Tax returns for the past two years.
• Two most recent pay stubs.
• Most recent credit-card statements.
• Most recent bank and investment account statements.
• Divorce decrees and child support documents.
• Your budget.

3. Craft a budget: How much house can you afford?
There is a difference between the maximum payment a borrower can qualify for -- which can sometimes be surprisingly high -- and the amount you can comfortably afford, says Combs.

"Each person has to know the difference in his own mind," she says. "If you're just getting by with your current rent payment, and the lender says you can qualify for more, give it some thought."

However, first-time buyers, in particular, often don't know how the tax-deductibility of mortgage interest and property taxes can help offset a mortgage payment that is higher than their rent. A good real estate agent can help you figure out the bottom line.

Keep it steady
Once you're closing in on your purchase, and especially after you've applied for a mortgage, do your best not to change your financial picture. "When you sit at the closing table, you will be asked to sign a document that says your credit is the same as it was when you originally applied for the loan," says Combs.

If at all possible, put off job changes. Lenders like to see a steady history of employment and frown on job changes while your application is pending, unless the new job is in the same field and at the same or greater pay. By Elizabeth Razzi • Elizabeth Razzi is a freelance personal finance reporter and author of "The Fearless Home seller." She is based in the Washington, D.C., area.

Read more about the steps to buying a home

Toronto Real Estate Board (TREB) Average Prices and Graph

For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829

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