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When it comes to buying your first home, a lack of knowledge and experience can lead to costly mistakes. One in four first-time homebuyers say they are completely unfamiliar with the mortgage financing process Even amount those with an understanding of the overall process, many first-time homebuyers still had significant knowledge gaps in important areas such as available mortgage rates, closing costs, down payment requirements and income required to qualify for a loan.
Use these tips to become mortgage ready:
1. Adjust your budget: A mortgage payment can increase your monthly housing expenses, so prepare by calculating what that amount will be and begin saving that same amount every month so you can get used to the budget change in advance.
2. Plan for a down payment: Nearly all home loans will require you to put some money down as a down payment. Some home loans may require as much as 20% of the purchase price as a down payment, although some Federal Housing Administration (FHA) loans may require less. Decide on the amount you thing you’ll need and create a savings plan to help you reach that goal.
3. Consider the location and type of house you want to buy: Many factors influence the cost of a home, including its locations, size, style and more. A larger home in a high income area will generally cost more, and property taxes will be higher on a bigger, newer, well located home. Knowing the estimated cost of the type of home you want to purchase can help you better manage your budget.
4. Stay on top of your credit: Lenders will consider your credit score and report history when determining your mortgage eligibility and the interest rate they may offer you. Make sure to review your credit report in advance. You can download a free report from all 3 major bureaus at www.annualcreditreport.com. If you’re planning to apply for a mortgage, it’s a good idea to review your report more frequently and to consider paying to obtain your credit score from at least 1 major bureau. If your report contains errors, work with the credit bureaus to have them corrected before your apply for a mortgage.
5. Keep current on monthly bills: While it’s important to save toward a down payment, don’t let monthly bills slide. Paying your bills on time every month can help increase your credit score and a good payment history is something lenders look for when reviewing your credit report. Use online tools like email reminders and automatic payment options to help ensure you never miss or make a late payment.
6. Work on your debt: If you have delinquent balances, bring them up-to-date as quickly as possible. If you carry a lot of revolving credit card debt, you may want to work to reduce it by paying more than the monthly minimum payment. While it helps to have a report that shows no late payments, the most important thing is to not have any delinquent balances before you apply for a mortgage.
7. Plan for escrow: In addition to the amount you will need each month toward repaying your mortgage, you’ll need escrow – an amount added to and collected with each monthly mortgage payment that is applied toward annual homeowners’ insurance premiums, and/or taxes, and/or homeowners’ association dues, if home located within association. Estimating these costs can help you better understand how much your escrow will be each month, and you’ll be able to budget more accurately. Don’t forget that this amount may adjust every 12 months if any change for the next year.
8. Take advance of educational resources: Check out resources like the Consumer Financial Protection Bureau (CFPB), US Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA).
Please realize these are items we can explain in further detail. If you have any questions, give us a ring and let’s see what we can do for you.