If you are in the market for a new home, but don’t have the cash to buy it outright, are you prepared for financing it? You may currently have a mortgage, credit cards, student or auto loans, but how can you be sure that you are getting the best lending rates available to you when it’s time to buy a new home?
Determine Your Budget. Save at least 3 months of receipts and bills to add up all of your monthly expenses. In addition to your car payment and utilities, you’ll end up seeing incidentals as well such as medical, dental and vet bills or just a few trips to Starbucks each month. This will help you to determine how much of your income you are currently spending on your housing and if you can afford a bigger home loan or need to make some changes.
Reduce Your Debt. If a lender sees that your debt to income ratio is higher than 36%, you most likely will not qualify for the lowest rates available. Paying down debt on revolving loans and installment loans to where you are spending between 8-10% of your net monthly income looks more favorable to a lender.
Save Up for a Down Payment and Closing Costs. Optimally, you will have 20% of the purchase price available to use as a down payment to avoid paying PMI (Private Mortgage Insurance,) but there are loan options available for as little as 5%, although they come with much higher interest rates. Additionally, the closing costs can average from 2-7% of the purchase price, but they can sometimes be rolled into the monthly mortgage payment or negotiated from the Seller to pay out of his proceeds. Alternately, there are state and local government programs you may qualify for that offer special mortgage or down payment assistance. You can also withdraw your IRA savings without penalty for your first home purchase.
Contact a Lender. Since market conditions and mortgage programs change frequently, you need to make sure that you’re dealing with a top professional who will be able to give you quick and accurate financial advice. They have the expertise and knowledge to help you explore the many financing options available or the special programs you may qualify for so that you can make the best choice for your home purchase. Be ready with your income verification documents such as W2s and paystubs and copies of 3-4 months of bank statements. For more information on these options, contact Roger Cohn at Northeast Equitable Mortgage, LLC. [Office: 610-234-3841; Email:firstname.lastname@example.org]
Review and Repair Your Credit. Lenders typically look for a credit score above 620 to approve a mortgage, but there could be many factors affecting your credit. Some factors that go into your FICO score are payment history (any bankruptcies, liens, collections, and late payments will negatively affect your score,) length of credit history, open credit available, and current balances on your accounts. To improve your credit score before your loan application, you can download your credit report to check for errors, pay down credit card debts, wait at least 12 months after any debt settlements, avoid buying new furniture or appliances until your mortgage is finalized, and shop for your mortgage within a month or so to avoid multiple inquiries on your credit.
Just like hiring a real estate agent to help you navigate the home-buying process, you need a professional to help you navigate the mortgage loan process. Get yourself financially prepared with the things you can control, but leave it to the experts to show you all of your options before deciding whether or not you can afford to buy a new house.
If you are considering buying or selling a home or you’re just curious what your home is worth, please contact me today at:
Frank Dolski, Associate Broker and Relocation Specialist
Coldwell Banker Hearthside, Realtors
Office: 215-794-1070 x103