Monthly Archives: March 2015

Get your financial ducks in a row before you go house hunting

Spring is just around the corner and many people, both the seasoned homeowner and the first-time homebuyer, will be in the market for a new home. Whether you’re upgrading, downsizing, relocating or tired of the rental scene, the sooner you get your finances and credit in shape the easier it will be to get a mortgage loan.

Here are some helpful tips to help you prepare for your future home purchase:

What’s your credit history look like?
The first thing you should be focusing on is your credit history. Do you pay your bills on time? If you are a renter, do you have a history of paying your rent on time? Most mortgage lenders today require the last 12 months of cancelled checks if you’re renting from a private individual or they will want to contact the rental agency to determine if you pay your rent on time. If you are a homeowner, the lender will be looking at your mortgage history – have you paid your mortgage payments on time?

Do you have any delinquent accounts? These are accounts that are late, charged-off, sent to collections, etc. These can seriously affect your credit score as well as your ability to obtain a mortgage. If you have any of these accounts, you should pay them off before applying for a mortgage.

Keep close tabs on your credit
It’s a different world out there today with respect to credit scores. If you have less than a 700 credit score, you can expect to pay higher fees or a sizable down payment.

If there are discrepancies, file a dispute by with the credit bureaus.

Monitor your credit score. Check for inaccuracies that can hurt your credit score and hinder your chances of getting the best mortgage deals or a mortgage at all.

Stop applying for credit a year before you apply for a mortgage and avoid large purchases until you’ve closed on your new home.

If possible pay off any balances on your credit cards and then don’t use them for at least 45 days prior to applying for a loan.

Make sure to have three trade lines (e.g. credit cards, student or car loans, etc.) that have been open, active and in good standing for at least a year.

Figure out what you can afford
The last thing you want is too much house for your pocketbook. The home of your dreams will quickly become your worst nightmare.

There are several rules of thumb that can help you get a grasp on how much house you can afford. Typically with FHA financing, your home payment can’t exceed 31 percent of your monthly income…with some mitigating factors this percentage can be higher. If you are obtaining a conventional mortgage, a safe rule of thumb is that your home expenses shouldn’t exceed 28 percent of your gross monthly income.

Save for your down payment and closing costs
Depending on your credit situation and specific financing, you will need to save for a down payment. A bigger down payment doesn’t guarantee loan approval but it sure helps. And don’t forget the closing costs associated with a home purchase and the mortgage.

Your savings should reflect a figure that is over and above the down payment and closing costs. Lenders want to know that you’re not living hand to mouth. Three to five months’ worth of mortgage payments in savings makes you a much better loan candidate.

Do your homework
Make sure you fully understand all the costs involved in homeownership. There are property taxes, insurance and in some cases homeowner’s fees. If you are upgrading, most likely the utility bills associated with your new home are higher. Also keep in mind that the cost of repairs, maintenance and decorating may be higher than you think.

Get pre-approved
If you’re serious about purchasing a new home, get your financing in place before you walk through the first door. Get all your paperwork together and meet with a mortgage lender.

Find a house that you like
Purchase a house that you like and will fit your needs for several years to come.

Gone are the days of quick sales and depending on how much you put down and all the extraneous costs involved in a home purchase, not to the mention the costs involved in selling your current home and relocating, short-term ownership can be quite expensive.