- We all live in fear of our credit rating. There are those that monitor it closely and then there are the rest of us that just want to bury our heads in the sand and pretend it doesn’t exist. That said, when starting the process of buying a house or even thinking about it, it is vital to check your credit rating. Chances are, if you’re human, there will be some questionable decisions that have impacted your credit history. The possible consequence of having these “dents and dings” is a higher interest rate. If you have things that have been disputed or are negative on your credit report, make sure you have all the possible documentation you can outlining them. These could be important given that the mortgage companies will weigh this information greatly in their decision whether to offer you financing. If your credit rating could use some improvement, make sure you have a clear understanding of what you need to do to bring it up. It’s best to do this before you get too far along in the buying process.
- Along with your credit rating is your “debt percentage”. Mortgage companies look for the numbers 33/38. This number represents that up to 33% of your monthly income goes to housing expenses and up to 38% is allowed to go toward consumer debt. Any number too far out of this range could cost you the qualification for your mortgage.
- You need to know your numbers. What are you spending on rent and housing? What are you devoting every month to debt? And what amount are you spending on other fixed living costs? Extra expenses that may be flexible don’t necessarily need to be considered. That’s up to you. But you need to KNOW that you can afford a mortgage, not just think it or believe it. There are always places that our paychecks leak into. Make sure you know where those places are.
- Any loan company is going to look hard at where your down payment is coming from. They are going to look at your bank statements and search out any unusual movement of money. They will be looking for large amounts coming in and large amounts going out. If a friend or family member is giving you a gift or a loan, you should plan on it being in place for quite some time. The loan company is looking for not only the down payment to be there, but also closing costs. These are the reasons that you MUST plan ahead.
- Make sure you know the interest rates around and the choices you have for a mortgage. The different mortgages will have fixed and variable interest rates, different lengths of time, prepaid interest, and more. You will need to make a decision whether to lock the interest rate in or let it float with your mortgage. When deciding this, be well-informed. You should understand whether the current rate environment is rising, staying the same, or falling. The options may cause your head to spin. Don’t panic! One of the most important things you can do is to comprehend how whatever choice you make can affect your cash flow.
- Know the housing market in your area. Remember that housing prices never move in only one direction, up or down. Be aware that if you pay too much for a home in a booming market, when the market inevitably falls, your may find that you do not have the equity you started with until the market picks up again.
- Lastly, keep in mind the additional costs that come with being a homeowner. You have been paying rent every month, but you have probably not been paying property or any type of real estate tax. There could be homeowner’s association fees and higher utility costs. This does not take into account homeowner’s insurance, maintenance, and inevitable repair costs. For these reasons and more, make sure your budget has some flexibility.
Whew! That is a lot to swallow, I know. Not one of the items on this list is impossible. Everyone is able and has a right to own their own home. You just need to plan and be prepared. And none of the items on this list are going to mean the same thing for everyone or should be seen as one of the Commandments for buying a home. Take things one step at a time. Breathe. And look for the light at the end of the tunnel. Picture yourself sitting at your very own kitchen table in your own home, drinking your very own cup of coffee, and laughing about the complex process it took to get there. Think of the peace that will come over you when you crawl into your bed and night and know that you own something great.
Ideas for this article were taken from:
Kay, M. F. (2017, August 15). 7 Steps To Take Before Buying Your First Home. Retrieved August 17, 2017, from https://www.forbes.com/sites/michaelkay/2017/08/15/7-steps-to-take-before-buying-your-first-home/#156aadbd1091