1. Handle your credit horrors. Maybe you don’t have any credit horrors – kudos to you! But let’s get real, this year will be a year in which many post-foreclosure, post-bankruptcy, post-layoff Americans will find themselves sufficiently recovered, post-recession, to get back into the real estate market and buy a home. If you count yourself among the number of 2013 wanna-be buyers who experienced a financial glitch of any degree during the recession, December is the right time to start pulling your credit reports and doing a damage assessement and control campaign.
Visit AnnualCreditReport.com (the only website through which you can access your government-mandated free reports) and order your own credit reports from all three reporting bureaus.
Review them all, line-by-line, checking for errors and discrepancies. It is extremely common for paid-off accounts to still be reporting as delinquent, for foreclosed mortgages to still be listed as open and past-due and for bills that were settled in collection to be reported as behind. Follow the instructions to dispute any such errors you see.
When you talk with your mortgage broker (see #4), go over the reports with them again, getting a read on precisely when your foreclosure, bankruptcy, delinquencies, gaps in employment or other credit woes will be sufficiently “seasoned” (i.e., long ago) to allow you to qualify for another loan, and get their advice on any action items, like paying a particular debt or set of credit cards down to $X amount will be important for you to complete before you try for a legitimate pre-approval next year.
In fact, this last point applies to everyone – whether or not you think you have any dings on your credit report. It’s essential to get clear on any of the work you’ll need to do to optimize your credit standing now, as the payoffs, disputes and other credit work that can move the needle on your score may take some time.
2. Purge. It’s time. Time to get rid of all that things you know qualify as clutter – all of the stuff you know buyers won’t want to see when they tour your home, and all the stuff that you won’t want to move to your next place. If you donate your junk before the end of the year, you might be able to get a receipt and deduction for the taxes you file in 2013. And tax break or not, getting all that stuff out of your attic, your closets, your shelves and your rooms will clear up loads of mental space and energy, minimize some of the overwhelm latent in the prospect of moving – and might even surface a few things you can sell to boost your down payment savings or your home staging budget.
Clutter clearing gets overwhelming when you simply lack the time, in the face of everyday urgencies, to invest a few hours or days to go deep, pull out all the minutae and memory-laden How better to spend those wintry days between Christmas and New Year’s than to clear out the clutter in your home – and your mind?
3. Plan your prep. If you’re thinking of selling your home in 2013, now is a great time to start organizing your list (or spreadsheet, or Evernote file) of home preparation tasks that need to get done before you put the place on the market. Things like painting, carpeting, landscaping and other preparation tasks can be less taxing and less disruptive to your life if you have plenty of time to collect bids, sock away the cash to cover the costs and arrange projects at your family’s convenience or during off-seasons, when contractors might be wiling to charge a bit less.
Talk with your agent before you put a plan in place; they can help you make good decisions which projects to do (and which to forego), as well as choosing finish materials and colors that will appeal to the broadest segment of buyers – to boot, they often can refer you to the most cost-effective contractors in your area for these sorts of pre-listing projects.
3. Save. More. There’s no such thing as saving too much cash up for your down payment. If you have a home to sell, you have no idea how much you’ll take away from that transaction until it closes. And even if you’re currently renting, having maximum savings set aside allows you maximum flexibility in terms of selecting homes, competing with other buyers, covering closing costs (which can run as high as 3-4% on average for an FHA loan) and even handling post-closing repairs, appliances and property personalization.
4. Collect your gift money. Buyers who get gift money from a relative to apply toward their down payments are often subject to seemingly strange and definitely invasive documentation requirements – the most onerous of which is to produce copies of the gift GIVER’s bank accounts proving the source of the funds. If you know Mom, Dad, Granny or Aunt Bernie is going to chip in some cash toward your down payment in the Spring, consider asking them to go ahead and give it to you now, so you can put it in your own accounts and begin “seasoning” it as yours, which will help you avoid all those documentation demands.
Your benefactor should check with their financial and tax advisors to be sure the gift is structured so as to avoid any tax implications, before they give it.
5. Connect with an agent and a mortgage broker – stat. Don’t wait until the month before you want to buy or sell to ring up your trusty agent and initiate the conversation. Ask around for referrals or find an agent here on Trulia Voices now, get a mortgage broker (or 3) on the phone, and ask them to help brief you long-lead topics like:
Whether your market is a buyer’s market or seller’s market, and how that translates into what you can and should expect when you plan to buy or sell next year
Whether there are any area-specific timing issues you should factor in as you map out your timeline What – given the specifics of your financials, your savings, any past credit or other issues you have – you should be doing now in terms of paying bills down, settting savings targets, and such What changes, if any, you should plan on making to your property before listing it What sort of property you can get for your money in the areas you’re targeting as a buyer, and what kind of money you can expect to command for your property in your local market (this, obviously, will change over time – even over the few months or so between now and the time you list your home, but it still helps to have a general ides of the current market values).
6. Go Open House hunting. If you’re selling next year, it’s essential to get a real-life read on what the competition’s like, everything from what sorts of houses in your area are listed at various price points to what your target buyers are going to be seeing on their way into or out of your house. There’s no reality check on your own home’s preparation and staging – its overall readiness for listing – like putting on a buyer’s shoes and taking a tour through similar homes in your area. And there’s no time for this reality check like right now: when Open Houses are still a-plenty, you have more time to attend them, and you still have plenty of time to process your takeaways and incorporate them into your own property preparations.
Open House hunting is also helpful for those who have home buying on their 2013 to-do lists. It’s the only way you can start understanding how to decipher the listings you see online into a reality-based set of expectations about a property. It’s also the best way to get indoctrinated deeply into the realities of what you get on your local market at various price points, and it’s the most impactful strategy for starting the process of negotiating compromises with your co-buyers.
7. Think hard about your deductions, if you’re self-employed. In the wake of the recession, most mortgage guidelines for self-employed borrowers changed, so that your income for purposes of qualifying is assumed to be the average of your last two years’ Adjusted Gross Income, as reported on your federal income tax returns. That means lenders calculate your income after all your business-related and other deductions, not before.
So, yes, this does mean that maximizing your deductions may impact your ability to qualify for a home loan in 2013. But them’s the breaks – better to know this before you file your tax return, in the event it might change something about how you file. Loop your tax advisor, business bookkeeper and mortgage broker into your decision-making process about your 2012 taxes before filing, if you’re self-employed and plan to buy or refinance your home next year.