In a competitive housing market, it pays to be aware of what a seller might be looking for. If you’ve ever wondered how to qualify to buy a house, a good place to start would be REALTOR Magazine’s guide to recognizing a good buyer. Present yourself as a good buyer likely to follow through, and sellers will take your questions and offers more seriously.
Know Your Credit Score
Having a good credit score will help you make a good impression on the seller of your dream home. A good credit score indicates that you will pay what you promise. Knowing what your score is shows that you are organized and prepared. Be sure to check your credit report and take action to correct any errors you may find.
Be aware of how many debts you are currently responsible for. The more places you already owe money, the lower your credit score and the harder it will be to qualify for a mortgage.
Sellers want buyers who are more likely to qualify for a mortgage. Being able to show a good credit score is a start, but you can do much more to prove reliability. Don’t wait until you’ve chosen a house to bid on to start talking to your mortgage broker. Instead, start with choosing a mortgage broker and request preapproval for a mortgage — or at the very least, prequalification.
Prequalification will give you an estimate of how big a mortgage you may be able to get, and will signal to buyers that you’ve thought through your finances. Preapproval is a more rigorous process, likely involving a hard credit check, but will signal to buyers that you’re serious. Having a preapproval letter in hand when you make an offer is reassurance to the buyer that you’re good for the money.
Be Prepared to Disclose Your Income and Savings
You can’t ask how to qualify to buy a house without being ready to discuss personal finances. Your income, savings, and debts will be examined closely by your mortgage broker. A seller will also be concerned about whether you’ve fully planned future financing — they don’t want a buyer who may have second thoughts and back out.
The ideal buyer can place a down payment of at least 20% of the house’s price plus at least 2% of closing costs. Ongoing mortgage payments, taxes, and insurance should cost no more than 28% of their income. While it is sometimes possible to get larger mortgages than these limits, make sure you are aware of how far over you are and have a clear plan to cover the costs. Don’t let excitement lead you to bight off more than you can chew. A buyer who thinks you are making a mistake will be warry that you’ll realize the same before the contract is signed.
As we’ve established with finances, sellers prefer reliable offers. The more contingencies you have, the less likely you are to win when bidding against other buyers. Preapproval is just one way to reduce the perceived risk of contingencies. After all, a seller will find an offer contingent on mortgage approval less concerning if you have been prescreened by the mortgage company.
Another common contingency people will have when buying a home is waiting on their current home to sell. If you are buying your first home, this actually puts you at an advantage — you have no such concerns. If you are selling your home, consider carefully whether you really need to wait on its sale before purchasing your new home. In a competitive market, you will likely sell your house soon enough. If you can’t cover both mortgages for a short period, consider a bridge loan. Sellers prefer offers that are not contingent on the sale of another home.
Work closely with your real estate agent and be ready to view a house that meets your criteria as soon as its available. Have your questions ready, and make a decision as soon as you get answers. Indecisiveness will lead to another offer being chosen over yours — perhaps even before you make one.
Monitor online listings, set up alerts, and talk to your real estate agent about what you want in a house. Together, you will be able to find and qualify for a wonderful new home.