As a Bankruptcy attorney, unquestionably the top goal of most of my clients is to buy a home. Home ownership is a great wealth creator as well as something that brings great personal satisfaction, but it can come with risks and planning ahead is always the right strategy.
First, if you have had negative impacts on your credit, such as late pays, delinquent accounts, charge offs, or even a Bankruptcy, it would be prudent to check your credit report about every six months. For old & stale accounts, it would not hurt to contact those companies and see if you can pay them a small lump sum payment to settle the account in exchange for removal of the negative entry on your credit report. There are companies that can do this for you, but in my experience, you can do just as good a job yourself. Focus on the creditors that have multiple entries, rather than the creditors with the largest entries.
Second, because of the economics of buying a house, you need to show your potential lender that this is as much an investment for you as it is for them. Typically, this means a down payment. The larger the better, but this can pose problems for most people. You need to work backwards. Look around the neighborhoods that you would like to move into and see what the house prices look like. Typically, a down payment needs to be anywhere from 5% to 20% of the purchase price. So, as you drive around a neighborhood, if you see a house for sale, and for example the price is $300,000 then you need to factor on needing a down payment of between $15,000 to $60,000. That will allow you to plan on buying a similar house in the future. But, remember, you need to save up for the down payment.
How do I save up for the down payment? Well, you need to do a monthly budget. First, take your pay stub and try to figure out what your average monthly take home pay is. Then, add up all your normal monthly expenses. Don't forget smaller items, such as pet food, personal care products, haircuts, or even things like gambling, marijuana, or cigarettes. Figure out how much money you can realistically save each month and try to set that money aside in a separate bank account that you don't use for any other purpose. Of course, emergencies will happen and using your savings is always better than resorting to high interest credit cards, but you can use that savings account to plan on meeting your down payment goals.
Third, meet with several loan officers. Remember, that they get paid on a commission so they will be very aggressive about wanting you to move quickly on getting a home loan. You need to move at your own pace. Try to shoot for a fixed rate mortgage. Try to figure out what conditions you will need to meet in order to qualify for the loan you are looking for. Ask the loan officer what hurdles you might face with the underwriter. At a minimum, you will need to have the following information ready for review: your address for the past two years, your pay stubs, W-2's for the past two years, IRS tax returns for the past two years, bank statements for all checking, savings, and investment accounts, a list of other assets that you have such as cars, and a list of all outstanding debt that you have, even debt that does not appear on a credit report, such as medical debt, or old landlord debt.
With all of this in mind, plan ahead. For most people this process should be something that takes at least two years, or more. So don't get frustrated. Just keep the goal in mind and keep working towards that goal. Finally, don't let market fluctuations discourage you. There will be times when it is a seller's market and other times when it will be a buyer's market. There will be times when interest rates change. Your goal is to wait until the circumstances are right for you and then have all the pieces in place to accomplish your dream of home ownership.
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