HOMEBUYING: Before you buy
- Noir Holdings, LLC
- Aug 20
- 3 min read
With higher interest rates and higher home costs today, being financially prepared before buying a suburban Chicago home is imperative. What are solid financial tips to ensure you can buy a home in the area’s competitive real estate market? Keep reading.
Review credit reports
Checking your credit report with the three credit reporting agencies of Equifax, Experian, and TransUnion is important.
Visit www.annualcreditreport.com for free weekly access to your reports. Review each of the reports and ensure all information is correct. If there are errors, report it to the agency immediately. Correcting errors can improve your credit score.
Each applicant for a mortgage loan should review their credit report. Errors on a credit report can result in a lower credit score – and a higher interest rate.
Check credit score…for all buyers
Whether you pay to see your credit score from Equifax, Experian, and/or TransUnion or you check out the credit scores offered by your bank, lender, or credit cards, it’s important to see where that number falls.
Here’s how credit scores stack up according to FICO:
Exceptional: 800 to 850
Very Good: 740 to 799
Good: 670 to 739
Fair: 580 to 669
Poor: 300 to 579
Keep in mind, if you are able to achieve a score of 740 or higher, you’ll get the lowest interest rate on your mortgage loan.
Be sure to check the credit score of all who will be on the mortgage loan. Lenders will take the LOWEST score of two applicants to determine the interest rate on the loan.
Pay down debt
Before you purchase a home, work to pay down as much of your debt as you can reasonably manage. There are two popular ways to pay down debt. Choose which works better for you.
Snowball method
List all your debts from highest total amount to lowest total amount due.
Pay the minimum amount due on all accounts each month.
Put any extra cash toward your lowest total amount account to pay that one account off the quickest.
Once that smallest amount account is paid off, next work on the second-smallest amount account until you have all debts paid off.
Psychologically, this method rewards you with paying off an account the fastest.
Avalanche method
List all your debts by highest interest rate to lowest interest rate.
Pay the minimum amount due on all accounts each month
Put any extra cash toward the account that carries the highest interest rate to pay off the account that is costing you the most.
Once that high-interest-rate account is paid off, work on the second-highest-interest-rate account until you have all debts paid off.
Financially, this method is likely to save you the most as you’re paying off the highest-interest rate account quickest.
Get preapproved for a home loan
Talk to a lender and get preapproved for a home loan. You’ll have to provide documentation about your income, debts, savings, investments, and other financial information.
You will then receive a letter from the lender stating how much money they would lend you toward a home purchase. This letter can help you determine at what price homes you should be looking.
It can also help you determine if the monthly mortgage payment being proposed fits comfortably within your budget. If it doesn’t you may want to purchase a lower priced home.
Shop lenders
While you are looking for homes and have that preapproval letter in hand, keep in mind that you aren’t tied to that lender who preapproved you for a mortgage.
You can continue to compare interest rates, loan programs, and terms with other lenders. As long as you are comparing lenders for the same type of mortgage (say 30-year fixed-rate) during a 14- to 45-day long window, credit reporting agencies will recognize your lender shopping as one credit event on your credit report.
Know your financial situation
Smart homebuyers create a budget and determine if the proposed mortgage and housing costs are comfortable.
Before purchasing a home, consult your mortgage lender, financial advisor, and tax professional to understand the complete impact of your home purchase on your finances.
Looking to buy a home?
Check out Noir Holdings’ updated homes available in established neighborhoods in suburban Chicago: www.noirholdingsllc.com Buy direct from Noir Holdings and save!
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