How To Get Your Ducks In A Row
All across the United States, there are millions of people looking to buy a home – either now or in the future. Over the last few years, lower interest rates have come along, making it more affordable than ever to buy a home. Even after the “market scare” caused by the pandemic in the first quarter of this year, when people began to stop and give it some thought – buying a home still makes a lot more sense than renting a home or an apartment. No matter what type of calamity may be going on at any given moment, people still need a place to live.
In order to buy a house, you’ll need to start saving your money and have enough for the closing costs and a down payment. Your down payment will normally need to be around 15% of the price or the value of the property – whichever is lower. There are very low down and even no down payment loans, but these should only be used if you’re in a desperate credit situation. To be on the safe side, you should always try to have 20% to put down. The 20% rule is important as it means you won’t have to purchase private mortgage insurance, and that means a sizeable savings in the overall cost of your financing.
In most cases, the closing costs will run you around 5% of the property price. These costs may include homeowner’s insurance, appraisal fees, loan fees and points, property tax prorations, and physical inspections. There may be other items as well, such as PMI if required. Before you purchase a home, you should always get an estimate. In fact, get more than one. Both your Lender and your Realtor should be able to supply you with an estimate of closing costs. Now, an estimate won’t be the exact price, although it will be really close. You should always plan to save up a bit more money than you need, just to be on the safe side. It’s always best to have more than enough than not enough.
Find A Good Lender And Get “Pre-Approved”
You’ll know you’re ready to buy a home when you know exactly how much you can afford, and you’re willing to stick with your plan. Do your “due diligence” and find a good lender to work with well before your purchase. In markets such as we’re experiencing these days, you’ll want to be equipped with a “Pre-Approval Letter” from a good Lender before you go looking for the home you want. In quick markets like ours here in Southern California, if you find the home you want, you need to be prepared to make your offer quickly, and a Pre-Approval letter should accompany that offer. If you don’t have a Lender to work with, Brion would be glad to give you a referral… simply give him a call.
When you buy a home and you figure your monthly mortgage payment, it shouldn’t be any more than 25% of your total monthly income. Yes, there are lenders out there who will say that you can afford to pay more, but you should never let them talk you into doing so. Stick to your budget instead. You’ll be better off in the long run. A house can become a real burden if every month you’re scrimping and stretching to make the mortgage.
Keep in mind that there is always more money involved with a home other than the mortgage payment. You also have to pay for utilities, homeowners insurance, property taxes, and maintenance. Owning and caring for a home requires a lot of responsibility. If you’ve never owned a home before, it can take a bit of time to get used to. Frankly, there are some people who probably shouldn’t be homeowners. Before you jump in, consult with a good Realtor and a good Lender. Learn the “in’s and out’s” of all aspects of home ownership. You may find that you’re simply more suited to renting, and there’s nothing wrong with that. In the end, it’s much better to be a happy renter than an unhappy homeowner.
Clean Up Your Credit Report
Before you fill out any loan applications, you should always look over your credit report and check for any errors. Although you may not be aware of anything like this, you can easily get an error on your credit report and not even realize it. Credit reporting agencies make mistakes all the time.
If you have an error on your credit report, it can cost you a lot of money in interest rates. An error will decrease your credit score, which will put you in a higher interest bracket and ultimately cost you a lot more money in the end. Therefore, you should always know your credit before you actually apply for a loan.
Knowing your credit report means you can repair those things that are actual problems, and you can have any errors removed. A good lender will be able to tell you if you’re ready to move into an actual purchase, or if it would benefit you to spend some time repairing your credit.
If you start working with a lender and check your credit report early enough, you may leave yourself enough time to fix any problems and get your credit back on track. Rebuilding credit can take time though, sometimes even years. You should always plan ahead – and give yourself plenty of time to fix your credit.
Buying a home will require a bit of commitment on your behalf. You should always strive to get the best possible deal, which means knowing your credit and where you stand. This way, you can get the best interest rates. You don’t want to buy a home with bad credit, simply because you’ll pay a lot more money for the home in the long run. This is what happens with those “no down”, “low down”, or “sub-prime” loans that cause us so much trouble in the last decade. They’re still out there, but in most cases they’re a bad idea.
If you take the time to thoroughly consult with a good Realtor, a good Lender, fix any credit problems, and save up some money before you actually apply for a loan and make an offer on the home of your dreams – you’ll be able to get a much better home for your money.