So you’ve decided to take the next steps toward buying a new home? Congratulations! Home ownership is one of the best ways to build wealth with a long-term investment. It can also provide you with added stability and perks like tax deductions for some homeowners. It is also a big step and definitely not a decision you want to take lightly.
1: Your credit history is the most important thing
Mortgage lenders provide loans to homebuyers based on their credit score, a number between 300 and 850 that tells lenders how reliable you are at paying back debt so they can determine the risk in lending you money. If you have a low credit score (under 580) you won’t be able to qualify for a home loan. If your score is at or above 580, but still on the lower side (below 700) then you are probably paying a higher interest rate. Even a 0.5% rate increase can add up to thousands of dollars in extra interest over the life of your loan, and make your monthly payments higher.
Start repairing poor credit now before you apply for a loan. You can do that by:
- Paying down all your debt from student loans, vehicle, credit cards, etc.
- Making all your payments on time
- Building up your savings account
- Not opening unnecessary new credit accounts (retail store credit lines, for example)
2: Save for more than just your down payment
It is a good idea to save money for a down payment; the more you have to put down, the better interest rate you can get. You can also lower your monthly payments by putting 20% down because you won’t have to pay the mortgage interest premium (MIP). However, there are a lot of other costs associated with buying a new home, so in addition to saving for a down payment, also save for things like:
- Closing costs – these usually total about 3-4% of your total home price, and they are in addition to your loan. You may be able to roll some of it into your loan or negotiate with the home seller to pay some or all closing costs.
- Moving expenses – you need cash for things like movers or a moving van rental, boxes, packaging, and other supplies. If you’re moving a long distance, factor in travel costs too.
- Other expenses – you may also need cash for things like furniture, window coverings, renovations, and landscaping after moving in.
3: Get Preapproved First
Before you start shopping for your new home, talk to a lender to get preapproved. This process is relatively simple, but it provides you with an idea of how much you will be able to borrow so you can find a house in your budget. It also shows sellers you are serious about buying when you make an offer.
If you are planning a future home purchase, talk to Integrity First Lending today to get preapproved.