SEVEN TIPS TO FUTURE HOME OWNERSHIP
Below are seven tips to future home ownership. Buying a home for the first time can seem overwhelming. Following the tips below can help ensure a potential home owner is prepared to take on the task of purchasing a home.
Pay Down Debt
Although everyone can benefit from paying down debt, there are specific advantages to future home buyers. If a home buyer has too high of a debt to income ration, the amount of the pre-approval will be lower than a buyer with fewer or no debts. At a certain point the debt to income ratio can keep a buyer from qualifying for a mortgage at all. Lower debt also helps with better interest rates and terms on the mortgage.
One strategy for paying down debt is to pick an account with the smallest balance, pay that down and quickly as possible, then move all of that money to paying off the next smallest account. Another is to pay the one with the highest interest rate off first and move through the debt accordingly. By focusing on one debt at a time and paying minimums on the rest, home buyers can work quickly toward paying down debt overall.
Save Money for a Down payment
Some home buyers believe they need at least 20% down in order to buy a home. While 20% is the ideal amount for some home loans, there are many mortgages that do not require such a large down payment. Currently, some FHA loans can be used to purchase a home with as little as 3.5%. Homes that are located in areas covered by USDA loans, can be purchased for 0%. There are also loans available to military veterans for 0% through VA loan programs.
Even if a future home owner qualifies for a 0% down loan, it is still wise to save money before purchasing a home. Buyers can use this money to strengthen their offer, pay closing costs or transaction fees, or upgrade the home.
Check Your Credit Score
Whether planning to purchase a home or not, everyone should review their credit score and check all accounts and debts listed on the credit report at least once a year. Incorrect reporting can damage your credit score, which could prevent a home buyer from getting the best mortgage possible.
By paying down debts, the debt to income ratio and overall credit improve, which leads to a higher credit score. One tip for future home buyers: pay off debt but leave credit accounts open. Cancelling credit cards or credit accounts actually reduces overall credit access. Credit scoring companies look at total debts and total credit lines available. Called credit utilization, credit scoring companies consider their percentage of your debt in relation to your entire amount of credit available.
Future home buyers should also make sure that they pay at least the minimum amount owed on any credit account AND that they pay on time. Both of these impact overall credit scores. Even if you are focusing on paying down one debt at a time, you should never miss the minimum payment on other credit lines.
No New Debt
While there are times in life that loans are necessary, future home buyers should not add to their debt at least 6-12 months prior to purchasing a home. Avoid purchases of new cars, furniture, jewelry or anything else on credit. New credit lines require inquires and can reduce overall credit scores.
Stay at Your Job
Lenders like to see steady employment and pay history during the mortgage application process. A new job, particularly in a new field, can slow down the process. It is less likely to affect a future home buyer that is staying in the same field but changes employers for a better opportunity. When in doubt, contact your mortgage officer so they can run it past the underwriting team.
Interview a Realtor
Future home buyers should meet with a Realtor to understand how their skills and expertise can assist through the home buying process. While it may be months before a buyer is ready to purchase their home, establishing a relationship with a Realtor gains the buyer access to valuable information and guidance. Realtors will walk potential buyers through the steps of buying a home, educate them on the market and can offer referrals to lenders.
The duties of a Realtor representing a buyer are to help the client find the best property at the best price which meets the client’s needs, and to navigate the transaction through escrow while protecting the client’s interests. This involves researching suitable properties, taking clients on viewing, making offers and negotiating the terms of the purchase. They are also the key person in making sure escrow is completed properly.
Interview a Mortgage Lender
Not all mortgage lenders have access to the same types of loan products. As a result, it is a good idea to talk to a few lenders before choosing one to work with.
When interviewing lenders, ask how many FHA, VA, USDA and Conventional mortgages they have recently closed. This will help you determine if this lender can help you with the mortgage products you need. You can also ask what types of loans they recommend for a first time home buyer.
It is also important to compare fees and interest rates homebuyers will be charge for borrowing to buy a home. While the true number cannot be determined without a credit check, home buyers can see what rate are being charged to the general public. Keep in mind that rates vary based on credit rating, down payment, loan type and other circumstances.