May 9th, 2016 5:25 AM by Jackie A. Graves, President
Are you a first-time homebuyer eager to get into
the market? Here are steps to decide whether you're ready to take the plunge.
1. Check the selling
prices of comparable homes in your area. Do a
quick search of actual multiple listing service, or MLS, listings in your area
on a number of websites, including the National Association of Realtors.
2. Use Bankrate's mortgage calculator to get an idea of what your monthly mortgage payments would
be if you bought today.
3. Find out what your
total monthly housing cost would be, including taxes
and homeowners insurance. In some areas, what you'll pay for your taxes and
insurance escrow can almost double your mortgage payment.
To get an idea of what you'll pay in insurance,
pick a property in the area where you want to live and make a call to an
insurance agent for an estimate. You won't be obligated to get the insurance,
but you'll have a good idea of what you'll pay if you do buy. For an idea of
what you'll pay in taxes, check your property appraiser's website. Just
remember that exemptions and the intricacies of local tax law can create
differences between what a homeowner is currently paying and what you can
expect to pay as a new homeowner.
4. Find out how much
you'll likely pay in closing costs. The upfront cost
of settling on your home shouldn't be overlooked. Closing costs include
origination fees charged by the lender, title and settlement fees, taxes and
prepaid items like homeowners insurance or homeowners' association fees. You
can see what closing costs average in your state by looking at Bankrate.com's annual closing cost survey.
5. Look at your budget and determine how a house fits into it. Fannie Mae
recommends that buyers spend no more than 28% of their income on housing costs.
Go much past 30% and you risk becoming house-poor.
6. Talk to reputable
Realtors in your area about the real estate
climate. Do they believe prices will continue falling or do they think your
area has hit bottom or will rise soon?
7. Remember to look at
the big picture. While a buying a
house is a great way to build wealth, maintaining your investment can be
labor-intensive and expensive. When unexpected costs for new appliances, roof
repairs and plumbing problems crop up, there's no landlord to turn to, and
these costs can quickly drain your bank account.
So consider whether you're ready for the expense
and effort of homeownership before pulling the trigger.
Prepare for the hunt
If the numbers make sense for you, taking a few
steps at the beginning of the homebuying process can save you time, money and
1. Examine your
credit. Right now, blemished credit or the
inability to make substantial down payment can put the kibosh on your
homeownership plans. That's why it pays to look at your creditworthiness early
in the home-buying process. Get your free annual credit report and comb through
it for errors and unresolved issues. If you find mistakes, contact the credit
reporting bureau to make sure they are corrected. It's also a good idea to get
your FICO score, which will cost you a small fee.
Here's another thing to inspect: your credit
report. Get your credit report and score today, free
and with no obligation, at myBankrate.
2. Get your docs in a
row. Collect pay stubs, bank account
statements, W-2s, tax returns for the past 2 years, statements from current
loans and credit lines, and names and addresses of your landlords for the past
2 years. Have them ready to show to the lender. This may seem like a lot, but
in this age of tight credit, don't be surprised if your lender needs a lot in
the way of documentation.
3. Find lenders and
get preapproved. Getting
preapproved for a mortgage helps you bargain from a position of strength when
you are house hunting. The institution where you bank and a local credit union
are good places to start your search. Use
Bankrate's mortgage rates tool to find lenders offering the
best rates in your area. Applying to multiple lenders in the same month helps
increase your chances of getting a loan approved at the best rate possible
without dinging your credit score too much.
4. If at first you
don't succeed, try, try ... the government? If
you can't find a bank willing to lend to you -- and in the current tight credit
market, it's possible you won't -- consider getting an FHA loan. The Federal
Housing Administration has a program that insures the mortgages of many
first-time homebuyers. As a result of this guarantee, lenders who might
otherwise feel queasy about your qualifications will be more inclined to lend
to you. As a bonus, the FHA requires a down payment of only 3.5% from
By Claes Bell, CFA - To view the original
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