Here are some steps to take as you consider buying the house you have always dreamed of:
Make sure you're ready. Housing turnaround or not, being a homeowner doesn't work with every lifestyle. Ask yourself:
- Is my job secure? Taking on a huge debt might lead to financial trouble if you lose your job in a few months or years, especially if finding a new job requires relocating.
- Do I plan to stay put? I know I want to spend the rest of my life in my city. If I buy a house now, I won't be selling it for a long time. But if you're not sure where you'll be five years from now, renting often makes more sense. That's partly because using a real-estate agent to sell a house can cost 6% or more. Sell your home before you have that much equity and you'll lose money.
- Am I in transition? Even if you're not changing towns, you might still need to change homes. Life changes like marriage and kids can require a different house.
Know what you can afford. You don't want to end up house poor and struggling to pay your other bills because your mortgage is too expensive. Your house payment -- including the mortgage, property taxes, and homeowners insurance -- shouldn't exceed 35% of your monthly gross income.
Shine up your credit. Lenders have strict credit requirements after the housing market apocalypse. In 2011, the average credit score approved for a Fannie Mae or Freddie Mac mortgage was 760, according to CNNMoney. The average credit score for an FHA approval was 700. To qualify for the best conventional loan, you'll need at least a 740 credit score. You should check your credit at least six months -- preferably a year -- before home shopping so you'll have time to improve it before applying for a loan.
Get your down payment together. These days, many lenders want at least 20% down, but even if they don't, the bigger the down payment, the better. An analysis of 3.6 million mortgage inquiries and found that the best loan rates came with an average down payment of 28%, according to USA Today.
If you go with an FHA loan, you can qualify with a lower down payment, as low as 3.5% of the purchase price. But be aware that without 20% down, you'll be faced with the extra expense of private mortgage insurance.
Get pre-approved for a mortgage. Once your credit is good and you have your down payment together, it's time to apply for a mortgage. Do it before you start home shopping and be sure you're pre-approved for a loan. That means the lender has agreed in writing to lend you up to a certain amount. This is critical, because pre-approval means that unless your financial situation changes, you basically have that amount of money in your pocket and can pounce when you find your dream home.
Contact MNB today to assistance in helping you get your dream home.