July 3, 2020 | Tips, Tricks and Member Safety. Share this article:
Most people would agree that owning a home is part of the American dream, but buying a house can be daunting for even the most financially savvy person. Before you head out to buy your dream home, be sure you’re armed with the right information to help you navigate the process so you can save money and avoid common mistakes. Check out these and other practical tips from credit.com to help make the home-buying process more manageable.
Tips for navigating the mortgage process…
- Save for a down payment. Putting at least 20% down on a home will increase your chances of getting approved for a mortgage at a competitive rate and will help you avoid mortgage insurance. The optimal down payment amount depends on your goals and financial situation, but a larger down payment can result in a lower mortgage interest rate and lower monthly mortgage payments, saving you thousands over the life of the loan.
- Know the numbers – When calculating their budget, most people focus on their mortgage payment, but there are many other expenses that go into owning a home, including home repairs, utilities, HOA fees, homeowner’s insurance, and local property taxes. And don’t forget include closing costs, which can be up to 3-4% of the purchase price of the home.
- Know and understand your credit score – When applying for a loan, your FICO credit score will be one of the key factors in determining whether you’re approved and what your interest rate and loan terms will be. You have three FICO scores, one from each of the major credit bureaus—Equifax, Transunion, and Experian. Be sure to check your credit before you begin the home buying process. Dispute any errors that could be affecting your credit score and look for opportunities to improve your credit, such as paying off outstanding debts. Any changes to your credit scores or reports could potentially derail the loan process or result in a higher mortgage interest rate, so avoid opening any new credit accounts, like a credit card or auto loan, until after your home loan closes.
- Get to know your local credit union – There are many potential advantages to choosing a credit union as your lender, including a better mortgage rate, but none are as important as having a personal relationship with your financial institution.
- Get pre-approved – While pre-qualification gives you a sense of financial readiness and can be done quickly over the phone or online, preapproval takes it to the next level by requiring proof of your financial history and stability. You’ll be asked to provide a variety of documents to verify your assets and debt, income, employment and credit standing. You don’t have to be pre-approved to make an offer on a house, but having a pre-approval letter shows that you’re a serious buyer, and that extra level of commitment and preparedness might give you an edge in a competitive market.
- Lock in your rate and terms – Once you’re pre-approved, lock in the terms and rate of your mortgage loan. This will protect you from changing rates and commits your lender to funding your loan at the specified rate.
- Make an offer – Once you’ve been pre-approved and locked in your rates, you are free to make an offer on your new home. If you’re a first-time home buyer, it may be hard to know how much you should offer. This is a good time to rely on your real estate agent’s expertise. Your agent can help you make sure your offer is competitive but also within your budget and the value of the home. Be careful not to make an impulsive offer that’s higher than you can afford just to make sure you get the house. A personalized letter might help your offer stand out among multiple bids in a hot market.
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