Thinking of moving or buying a new home? Are you worried about all the new changes in guidelines and what to do with your current property? Do you know about credit score requirements? Are you familiar with flexible standards on Federal Housing Administration loans? Leverage the knowledge of a good real estate agent who is active in your market.
Whether you are a first-time home buyer or an experienced owner, buying a house requires a good review of your situation.
Here is six steps, including tips on types of savings you need, plus advice about what to look for in your next home other than the resale value:
1. Strengthen your credit score
One old rule still applies: The higher your credit score, the lower your down payment and monthly payments.
You maybe wanting to buy but feel you have bad credit. Even if you just got out of bankruptcy or just lost your home to a short sale there is still hope and there is no better time to start fixing your credit.
It may take some time and it may not take long at all as you may think. Check out this interview I did with our friend Serge from LSI Credit Solutions.
The minimum seems to be around 640 according to our mortgage experts. If you are reading this article months from now this may change but for now it seems as low as 640 you may qualify. Please seek a professional mortgage officer to get an update on what you can get qualified for.
On the other end, a score of 700 – 720 will get you a good deal and 750 and above will get you the best rates on the market.
Stop applying for new credit a year before you apply for financing.
2. Figure out how much house you can afford
There are various rules of thumb that will help you get an idea of how much home you can afford. If you’re using FHA financing, as almost one-fifth of buyers do, your home payment can’t exceed 31% of your monthly income. But, with some mitigating factors, FHA will let you go higher.
Improve your chances by: trying on that financial obligation long before you sign the mortgage papers, says Tiffany. Before you home shop, calculate the mortgage payment for the home in your intended price range, along with the increased expenses (such as taxes, insurance and utilities). Then bank the difference between that and what you pay now.
3. Save for down-payment and closing costs
Depending on your credit and financing, you will typically need to save enough money to put anywhere from 3.5% to 20% down.
If you’re using FHA financing, then you need a score of 500 or higher. And in the 500 to 579 range, if you can find a lender, you’ll have to put 10% down instead of 3.5%.
Here are other unexpected costs: closing costs. Whatever your loan source, you’ll need money to pay closing costs, which run from $2,500 to $4,000 depending on where you live.
4. Build a healthy savings account
Did you know in some cases you will want to build a nice savings as are reserve. This is over and above your money you put down for a down payment and closing.
Your lender wants to see that you’re not living paycheck to paycheck. If you have three to five months’ worth of mortgage payments set aside, that makes you a much better loan candidate.
And some lenders, like the FHA, will give you a little more room on other factors if they see that you have a cash backup
That money will also help you with maintenance and repair issues that come up when you own a home. While repairs are sporadic, the bill for a new roof, water heater or other big-ticket item can hit hard suddenly. You may want to look into purchasing a home warranty that will take care of those big items as well.
5. Get pre-approved for a mortgage
If you are a serious buyer, you want to make sure your financial house is in order. Before the real home shopping begins, you want to get financing in place.
6. Buy a house you like
If you’re buying today for yourself and your family, you want a home that you deserve. A home that will make you happy for the next few years.
Finding out you don’t like the area or school could cost you more money if you decide to relocate again. Its almost like buying a car you may loose value in the home if you decide to move shortly after the purchase of your new home. Make sure you like the home.
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