January 27th, 2016 at 10:00 am

Resolve to buy a home

Resolved to make 2016 the year you finally realize the American dream of owning your own home? It could happen.

Even with low housing inventory in many regions, and the Federal Reserve Bank’s recent ¼ percent hike on its benchmark interest rate, buying a home is within reach for many Americans. Of course, much depends on your financial history and ability to make the monthly mortgage payments. So if homeownership is at the top of your new year’s resolution list, here are 16 more resolutions that could help you achieve your goal:

  1. Work with a professional: 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.
  2. Make sure your credit is in good shape: Good credit is vital to obtaining a mortgage at a reasonable interest rate. When’s the last time you checked your credit score? If it’s been longer than one 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.
  3. Determine how much you can afford: 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.
  4. Study up on down payments: The old rule of a 20 percent down payment requirement is out the window. According to Freddie Mac, about 40 percent of today’s homebuyers are making down payments of less than 10 percent.
  5. Learn about mortgage options: 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.
  6. Get your documents in order: Filling out a mortgage application is time- and research-intensive, so having all your relevant 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.
  7. Research government programs: If you don’t think you’ll qualify for a mortgage rate you can afford through normal channels, there are other options. The Federal Housing Administration offers a loan program that may be within reach for people with a minimum credit score of 500.
  8. Get pre-approved: Before you start house hunting, 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.
  9. Learn about neighborhoods: Sure 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.
  10. Make extra mortgage payments: If you can afford them, making extra payments can dramatically shorten the time until your mortgage is paid in full. 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 off, you will lose the IRS’s mortgage interest deduction if you itemize on your tax returns.
  11. Look for homeowners insurance discounts: Major repairs or improvements you make to your home can get 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 updated plumbing can reduce the likelihood of leaks or burst pipes. Be sure to tell your insurance agent about such improvements, and ask which qualify for premium discounts.

Advice from our agents

We asked our agents to weigh in as well. Their replies:

  1. “Interest rates will stay below 4 percent for the next six months, but then start climbing again. This should be music to buyers’ ears!” – Dan Tapia, Ventura office
  2. “With interest rates still very near a historic low, buyers have more buying power than they have had in decades. Furthermore, as summer rolls around, there will be far more activity and competition for the homes that are for sale.” – Gregg Neuman, San Diego Downtown Gaslamp office
  3. “We know interests rates will continue to rise, so the time is now!” – Ellyn Dembowski, Ventura office
  4. “Prices are going up and continue to do so, so buy now!” – Marcy Cutting, Ventura office
  5. “While interest rates will not skyrocket overnight, they will go up. When they do, what buyers thought could go toward a down payment will now have to go toward monthly payments, thus lowering their buying power. Now is the time to buy! Waiting will cost more!” Joan Schultz, La Jolla Prospect office


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