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By Allison Videtti
Got spring home buying fever? You’re not alone. Spring is the busiest home selling and home buying season in most areas, as buyers scramble to find their dream home before the weather cools off again and the new school year begins.
If you’re planning to make your big move in the spring, get prepared with these tips:
Before you apply for a mortgage or even start looking at homes, it’s important to know your credit score. Your credit score impacts how much house you can afford because it affects your mortgage interest rate, which in turn impacts your monthly payments. For example, according to FICO’s credit score calculator, a buyer with a credit score between 620 and 639 would receive a rate that’s 1.37 percent higher than a buyer with a credit score between 700 and 759, resulting in a payment that is $291 a month higher on a $350,000 loan with a 30 year term. (That translates into a difference of $104,806 over the 30 years of your mortgage!)
Not only will your credit score affect your interest rate, it could also affect the down payment you’ll need so you can qualify for a mortgage with your lender. Alliant members can get their credit scores through online banking, but you can also request a free credit report from each of the “big three” credit reporting agencies (Equifax, Experian and TransUnion) once a year via annualcreditreport.com. Keep in mind that the score you see can be slightly different than the score your lender sees, so it should be used as a guide. This is because credit scoring models can vary by bureau, and your score is influenced by your credit activity at the time the information is pulled. But chances are, if the score you see is great, the one your lender sees when it checks your credit will be stellar, too.
Looking at your credit report now, before you start home shopping, is important in case you find an error on your report that needs to be corrected or in case your score indicates that you need to make credit repairs or prepare a bigger down payment.
If you’re buying in a competitive market, getting preapproved or pre-qualified can give you an edge when buying a home — especially if you wind up in a bidding war. Your prequalification usually lasts 60-90 days, so you’ll want to do this once you’re no longer casually looking at homes and you’re really ready to buy. When you get prequalified, a lender reviews your credit report, and may review your pay stubs, W-2s and bank statements to determine exactly how much that lender is willing to give you. It’s not a loan commitment, but it does speed up the underwriting and loan approval process, which means you can close on your home faster. A preapproval shows a seller you’re serious, and that quicker closing time could persuade a seller to take your offer over someone else’s. It might be a little bit more work up front, but winning the bidding war is worth it.
Buying a home is more than just a mortgage payment. If you’re renting, it’s easy to think, “Oh, this mortgage payment is less than my rent — I can definitely afford it!” But that kind of thinking can quickly get you into trouble. When you buy your home, you’ll face closing costs, which can range from two to five percent of the home’s purchase price, according to Zillow. So, if your home costs $150,000, you could pay between $3,000 and $7,500 in closing costs. That’s definitely not chump change.
Closing costs vary based on where you live, so check out this handy map of closing costs by state to get a better idea of the expenses you could be facing.
In addition to closing costs, you’ll face property taxes; inspection costs; utility bills, (probably higher than those you paid as a renter, since it’s likely a bigger space); homeowners insurance; and repairs. While you can negotiate with a seller and ask that they fix any issues a home inspector finds, you might find some surprises when you move in.
Research the average costs in your area, and ask the seller’s agent how much utilities generally run on each of the properties you see. That will help you make a realistic budget, and could help you narrow down the homes you’re interested in.
Who wouldn’t want all the bells and whistles of a fully remodeled kitchen, master suite with Jacuzzi tub and enormous, professionally landscaped yard? Make your wish list, but before you head out on your search, research online to find out what the homes in your price range actually offer in your desired neighborhood.
This exercise will help you determine where you might be willing to compromise. If a large yard is a must-have but your budget doesn’t support it in your desired neighborhood, are you willing to look at surrounding areas? Or, is location so important that you’ll give up that yard? By reviewing what you really want and what you can actually afford, you can ensure you’re looking in the right places, and you can avoid setting yourself up for disappointment.
The spring home buying season is exciting, but it can be stressful if you’re not prepared. Do your homework before you start scheduling showings, and you’ll have an advantage when you finally put an offer on that perfect place.
Allison Videtti is a digital marketing manager at Alliant. In her previous life, she worked in real estate and held multiple positions at a Chicago-based digital marketing agency, overseeing content strategy for a number of financial services clients. Allison's always been a saver and is something of a personal finance junkie. She loves reviewing her spending and updating her budget, and can't get enough of finance-related blogs and podcasts. Her favorites? Wisebread.com and the Planet Money podcast.