September 10th, 2009
Getting The Right Mortgage for Your Dream Home
White picket fence or penthouse suite, country or the city, two story brownstone or sprawling ranch house, whatever your taste may be, you know that your perfect home is out there waiting for you. Now may be the perfect storm for home buying, mortgage rates remain some of the lowest we’ve experienced in the past 30 years and home prices have taken a significant downward adjustment in the last 18 months. Here are ten simple steps to guide you on the journey to your new home.
- Get your credit score – Check your credit score because your lenders will be looking too! Having a good credit score is something many need to work up to, so stay disciplined, manage your credit use, stay on top of on-time payments, and pay down your debt especially in the months leading up to a new home purchase. Also, check your credit score regularly and identify any low hanging fruit changes you can make to your credit habits that can help you polish up your credit score and put your best score forward when that dream house comes along.
- Check credit report for errors – Shockingly, as many as 4 out of every 5 consumers have an inaccuracy or error on their credit report which can drop your credit score anywhere from 5 to 50 points. You should definitely check your credit report for any kind of false entries, wrong information, unreported payments, or any discrepancy between your actual credit accounts and the data in your credit report. Report any errors direct to the creditor to clear it up and set the record straight with the credit bureaus.
- How much can you afford in a home loan? – Determine how much you can realistically afford in a home loan by calculating what your monthly payments would be. Be honest here, projecting payments on a low rate loan, with a large down payment may likely not happen if you have a poor credit score and limited funds sitting in your savings account. You should aim to keep annual mortgage payments at 25%- 30% of the household’s annual income.
- Research for rebates and more! – With this big of an investment, you are going to want to take your time and do the research to see if there are any possible rebates and extra sales incentives being offered. The December 1st, 2009 deadline for the First-Time Homebuyer Tax Credit is drawing close, but if you can get through process of finding and purchasing your dream home right away, you might make the deadline and cash in on the $8000 tax credit it offers to consumers purchasing their first home.
- A little more homework – While you’re cruising the internet for rebates and more, also research loan terms and closing fees to save more money. Ask yourself what type of financing do you want — adjustable or fixed, 15 year or 30 year loan? If you don’t know or don’t understand these terms just yet then you definitely want to take your time and learn more about all the financing options available to consumers in today’s market.
- Stash away your down payment – Once you zero in on the amount you plan on using for a down payment, immediately set that cash aside, hide it in an interest bearing savings account so it’s just waiting to be used with no risk and only the reward of a new home.
- Open house visits! – The best part of the mortgage process is selecting your dream home, so do yourself a favor and visit several open homes in your price range as well as above and below your price range. This will help you familiarize yourself with the home prices in different neighborhoods and homes with varying amenities as well as get a sense for what other homebuyers perceive as valuable in a home.
- Monitor rates for home loans – While you are shopping around for your home, keep track of rates for home loans. You’ll need to understand when rates may push the affordability of your loan out of reach and when you may be able to stretch just that little bit more to get into that home with an extra 200 square feet.
- Pre-Approval for your loan – Want to have a better offer to put forward when the perfect house comes along? It’s time to go to the loan officer and get a loan pre-approved. The loan officer will run your credit report and score along with your employment history, monthly debts, and pretty much anything financial they can access to determine whether the bank can pre-approve you for a certain size of home loan. Pre-approvals provide no guarantee of a loan and loan terms are not locked down, but it’s a strong statement to potential sellers that you are a serious buyer and you have the credit, income, and experience to be shopping for their home.
- Make the offer! —Credit score polished, financing researched, rates researched, down payment safely set aside, pre-approval in hand, you are ready to make that offer when the right home comes along!
Of the 10 items listed, for most number 3 is the most important. Don’t buy what you can’t afford. This is one major reason why the real estate market ran into problems.