Home Buying Advice: Do Your Homework
#1: Check Your Credit
Review your credit report to make sure everything is in order and correct any mistakes you find. Your credit affects the interest rate and loan amount you’ll qualify for. You can get a free credit report at annualcreditreport.com.
#2: Gather documentation
Be prepared to provide documents explaining your financial picture. This may include pay stubs, past tax returns, credit card and investment statements for several months, and loans and revolving lines of credit statements.
#3: Watch the Real Estate Market
Understand how much leverage you’ll have in negotiating by watching how fast homes are selling and their general prices. Work with an experienced REALTOR ®.
#4: Learn About Loan Types
Educate yourself on the different types of loans available and what the best one for you is. Perhaps you want to go with a good old fashioned conventional 30-year loan, Or maybe a 15-year FHA loan? Decisions, decisions…
#5: Be Friends with Math
Maybe budgeting isn’t your forte – I’m a huge nerd when it comes to making a detailed monthly budget, but my wife couldn’t make a budget if her life depended on it. Either way now is the time to understand your cash flow or how you might need to alter your spending habits to position yourself to make the best purchase decision. There are some great free resources out there that can assist with this, such as Mint.com or YNAB (You need a budget.) Then you can decide where you might be able to cut back and save more.
It’s important to know what you can afford. Use the Borrowing Power tool on the Royal United homepage to help you determine how much house you can buy, based on your income, down payment and interest rate.
#6: The Low Down on Down Payments
If you haven’t already, you’ll need to come up with cash for your down payment and closing costs. Decide how much you’d like to accumulate, and start socking away cash as often as you can. (Personally, I prefer to move the money into a separate saving’s account when I am saving up for a large purchase). Generally speaking, the more money you can put toward a down payment, the lower your mortgage payments. A warning: With a down payment of under 20 percent, you will probably wind up having to pay for private mortgage insurance, a safety net protecting the bank in case you fail to make payments.
It may seem fairly involved and time consuming to do all this research and gather the information. However, the more time and effort that is put in at the beginning will help make the entire process run smoothly and put you in the house of your dreams.
Written by: Ben Carroll, MBA, IT Administrator at Royal United Mortgage LLC