July 14th, 2016 5:10 AM by Jackie A. Graves, President
a home is a huge investment. For most people, it is the largest purchase they
will ever make. Before you jump into the wonderful world of homeownership,
however, make sure you are prepared. Learn about credit score requirements,
mortgage options and other must-do's as a first step.
you are a first-time buyer or an experienced owner, buying a house requires a
"preflight check," in the words of Barry Zigas, director of housing
policy for the Consumer Federation of America.
a brave, new world with respect to credit requirements for mortgages,"
says John Ulzheimer, president of The Ulzheimer Group and a
nationally-recognized credit expert.
old rule still applies: The higher your credit score, the lower your monthly
660 or 680, you're either going to have to pay sizable fees or a higher down
payment," Zigas says. And that's pretty much the cutoff score for getting
a mortgage, he says.
Bott, a former official at the U.S. Department of Housing and Urban
Development, says that her office noticed much the same thing. "While
there are many qualified borrowers in the 580 range, the market today is
probably (looking for) 640 to 660, at a minimum," Bott says.
the other end, a score of 700 to 720 will get you a good deal, and 750 and
above will garner the best rates on the market.
Improve your chances by: pulling
your credit reports and ensuring you're not being unfairly penalized for old,
paid or settled debts, Zigas says.
applying for new credit a year before you apply for financing. And keep the
moratorium in place until after you close on your home, Ulzheimer says.
buyer's mantra: Get a home that's financially comfortable.
are various rules of thumb that will help you get an idea of how much home you
can afford. If you're using FHA financing -- as almost one-fifth of buyers
get FHA-insured loans -- your home payment can't exceed 31% of your
monthly income. But with some mitigating factors, the FHA will let you go
conventional loans, a safe formula is that home expenses should not exceed 28%
of your gross monthly income, says Susan Tiffany, retired director of personal
finance publications for adults for the Credit Union National Association.
a rough assessment of how much house you can afford, check out Bankrate's new house calculator.
Improve your chances by: trying on
that financial obligation long before you sign the mortgage papers, says
Tiffany. Before you home shop, calculate the mortgage payment for the home in
your intended price range, along with the increased expenses (such as taxes,
insurance and utilities). Then bank the difference between that and what you're
only does it allow you to build a nice nest egg, but "you can back away
from it," or scale back, if the payments start to pinch, she says.
on your credit and financing, you'll typically need to save enough money for a
down payment -- somewhere between 3% and 20% of the home's price.
get an FHA loan, you need a credit score of 580 or higher.
exception: Veterans Affairs loans, which require no down payment.
cash expense: closing costs. Whatever your loan source, you'll also need money
to pay closing costs. For a $200,000 mortgage, closing costs run (depending on
where you live) from $2,300 to $4,000. Get the average closing costs in your
state at Bankrate's closing costs map.
Improve your chances by: banking
your own money and seeking down payment assistance, Tiffany says. Often it's
location-based or tagged to a certain type of buyer, like first-timers, she
says. Search online with the city name, then the county name, along with word
combinations such as "down payment assistance," "first-time
homebuyers" and "homebuyer's assistance."
a buyer's market, you can also negotiate to have the seller pay a portion of
the closing costs.
your savings is something you should do over and above saving money for the
down payment and closing. Your lender wants to see that you're not living
paycheck to paycheck. If you have 3 to 5 months' worth of mortgage payments set
aside, that makes you a much better loan candidate. And some lenders and
backers, like the FHA, will give you a little more latitude on other factors if
they see that you have a cash cushion.
money will also help cover maintenance and repair issues that come up when you
own a home. While repairs are sporadic, items such as a new roof, water heater
or other big-ticket items can hit suddenly and hard.
Improve your chances by: setting
aside money every month. A good rule of thumb: On average, you'll spend 2.5% to
3% of your home's value annually on upkeep, repairs and maintenance, says
Joseph Gyourko, professor of real estate at the Wharton School of the
University of Pennsylvania. If you're buying a $250,000 home, aim to save $520
to $625 per month.
serious home shoppers, "the No. 1 thing is they better have everything in
order," says Dick Gaylord, broker with Re/Max Real Estate Specialists in
Long Beach, California, and former president of the National Association of
Realtors. That means that, before the real home shopping begins, you want to get financing in place, he says.
the preapproval process is "much more extensive" than it was a few
years ago, he says.
agrees. "That documentation around income and assets is very essential,
more so than in the last 5 years," she says.
Improve your chances by: getting
financing in place "before you walk through the first house," Gaylord
says. Otherwise, he asks, "How do you know how much you can afford?"
you're buying today for yourself and your family, you want a home that will
make you happy for the next few years.
can't always count on a quick sale. And depending on how much you put
down, and how much you have to shell out to sell and relocate, short-term
ownership can be a pretty expensive proposition.
Improve your chances by: stepping
back, Gyourko says, and making certain "you like the house."
Dana Dratch - To view the original article click here