Have you resolved to make 2017 the year you finally buy a home of your own? If so, don’t let the months slip by without taking the steps necessary for achieving the American dream.
Any experienced real estate agent will be glad to go over those steps with you. But we’ve capsulized some of them here because a little education and preparation go a long way when you officially enter the homebuying process. Follow through on this advice and you could be on your way to calling in the movers this year:
You could search for your home all by yourself. But why? With an experienced sales professional at your side, finding the perfect home is easier, faster, and a lot more fun.
Good credit is essential to obtaining a mortgage at a reasonable interest rate. When’s the last time you checked your credit score? If it’s been more than a year, find out what it is before a lender turns you down. If it needs improvement, start paying your credit card bills on time, try to pay more than the minimum, and work with a no-fees housing counselor. If you have no credit, work on establishing it by opening checking and savings accounts, and applying for and using credit cards carefully.
Get a realistic view of your finances to help understand how much you can afford for a down payment and monthly mortgage payments. Factor in your earnings, how much you spend, and what’s in your savings account. Make a budget and use free online tools and calculators. A good rule of thumb: Your mortgage payment (principal, interest, and mortgage insurance) should be less than 28 percent of your monthly gross income.
The old rule of a 20 percent down payment requirement is history. According to Freddie Mac, borrowers can get a conforming, conventional mortgage with a down payment of as little as 5 percent.
The type of mortgage you select can make a big difference in your monthly payments, and the overall cost of your loan. Most borrowers today who plan to live in their home for a while are financing with fixed-rate mortgages. Those who plan to stay less than seven years or so, and who can live with payment fluctuations, might do better with an adjustable-rate mortgage, which are making a comeback.
Filling out a mortgage application is time- and research-intensive, so having all your necessary forms available makes the process much smoother. Some of the important documents you’ll need are tax returns, W-2 income statements, recent pay stubs, credit card statements, bank account statements, and divorce or child-support documents.
If you don’t think you’ll qualify for a mortgage rate you can afford through normal channels, other options exist. The Federal Housing Administration offers a loan program that might be within reach for people with a minimum credit score of 500.
Before you start hunting for a home, work with your lender to get pre-approved for a loan. Pre-approval will tell you how much home you can afford, and help you move faster with greater confidence in competitive markets.
Of course you want to live by the beach, or on a hill with a view. But how much do you really know about the neighborhoods you can afford to live in? What is the population mix? How are the schools rated? What is the commute to work like? Sites like Faststats and California Title Company can tell you that and more.
If you can afford them, making extra payments can dramatically shorten the time until your mortgage is paid off. The more payments you make in a shorter period of time, the less you end up paying in the long term. Keep in mind, however, that once your mortgage is paid in full, you will lose the IRS’s mortgage interest deduction if you itemize your tax returns.
Major repairs or improvements you make to your home can land you a discount or a lower quote on the next year’s coverage. For example, a sturdy roof will keep wind out of your home, updated electrical wiring can reduce the risk of fire, and upgraded plumbing can reduce the likelihood of leaks or burst pipes. Be sure to tell your insurance agent if make improvements like these, and ask which ones qualify for premium discounts.
Ready to get started? Still have questions? Any one of our agents is more than qualified to get you on the right track. Find one and contact them today!