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In the previous article in this series I covered the first step – Selecting the general area. In this article I’ll cover one of the most important points in the buying process – Beginning the financial preparations. 2. Beginning the financial preparations. If you plan to purchase with cash, there is not as much for you to do on this step. But you will need to work out where you’ll be getting the funds for your purchase, including the closing costs, and make sure that they will be accessible when you need them. However, if you are in the 90+% of buyers that will be getting a loan to make a purchase, you should start early to arrange your financing. I’ve found that the most common mistake people make when they are looking to buy property is lack of preparation regarding financing. To start your preparations you will need to know: - How much of a monthly payment can you afford?
- Will you get approved for a loan?
- How much can you get approved for?
- How much will you need for a deposit when you put in an offer?
- How much down payment will you make, if any?
- Where will the money for the down payment come from?
- How much will the closing costs be?
Even if your purchase may be many months in the future, it is still wise to know the answers to all these questions. The more certainty you have on all aspects of your financing, the better chance you will have of knowing what you can buy and then being the one who gets that perfect property when you find it. You will also be in a much stronger negotiating position when you are ready to make an offer. Let me illustrate the importance of this. Recently I had a client who almost lost out on the home they decided (after much looking) was perfect for them. Since they hadn’t fully sorted out the financing arrangements for their purchase, we lost 2 days time from the point they decided to buy this house to the point where we submitted an offer. While we were in the middle of negotiating a contract, another buyer came along and made a better offer (all cash with a fast closing) and my clients almost lost the home they really wanted to buy. If we hadn’t lost those 2 days we would have been able to complete the negotiations and get a contract that would have worked for them before the other buyer had even come along. (Fortunately, that other buyer didn’t go through with the deal and my clients did eventually get the house. But they would have preferred not going through that stress and were lucky it ended up the way it did.) Another reason for starting your financing preparations early is that you may find out that waiting to apply for your loan raises your interest rate higher than it needs to be. The all powerful credit score has a lot to do with the interest rate you will be able to get for your loan. And I can guarantee you that it would be very frustrating to hear that if you had applied a few months earlier you might have been able to take simple actions to raise your credit score by the time you were ready to buy, thus lowering the interest rate on your loan and your monthly payments. Make sure you contact a good mortgage broker early enough and save yourself from some unnecessary stress and possibly higher payments. Hopefully the information above will help you to understand why it is important to begin preparing financially for your purchase early on in the process. When you have begun the financial preparations you will then be ready to move on to the next step which is: searching and finding the property that is right for you. The third article in this series will give you information on how to do this in the most effective way. As an accredited buyer's representative, Ron has designed a special buyer-oriented website that lets you search the local MLS for Clearwater real estate and the surrounding areas. In addition, he provides a monthly email newsletter so you can stay current on how the real estate market is doing in that area. You can visit Ron's website - Clearwater Homes Clearwater Condos - and register for both MLS access and the newsletter.
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