6 Tips for Saving for a Down Payment on a House

The costliest part of home buying is the amount you have to save for a down payment. Since the minimum down payment will have to be at least 3.5% of the purchase price, you need to start saving money well ahead of your projected home-buying time. These tips should help you build your down payment kitty.

1. Since down payment amounts are usually a percentage of the purchase price, establish a savings goal based on the price range of the kind of house you can afford. A home affordability calculator will help you determine your target price point.

2. Open a savings account to accumulate funds designated towards a down payment. A separate bank account will be less tempting for you to tap into for other purchases.

3. Have a budget based on your monthly income and expenses so you can determine the amount that you can comfortably put into your savings account.

4. Pay down your debt so those funds are free to become part of your monthly savings contributions. Try negotiating with your utility providers to reduce your monthly usage and costs. Apply those saved expenses to your down payment account.

5. Look at your budget and find where you can cut back on everyday spending, such as food, entertainment or travel. Suspend setting aside funds for travel until after you buy a home. Redirect your cut-back dollars to your savings.

6. When you can’t reduce any more of your spending, consider increasing your income by getting a small side job. Apply those earnings to your down payment fund.

Call or email to make an appointment with me so I can help determine what price range of home you qualify for and where you can make improvements and changes in your budget so you can start building up your down payment.

Do’s and Don’ts for Buying Your First Home

Your first-time home-buying experience can be a smoother process and less stressful if you heed these dos and don’ts. A home purchase is likely going to be your biggest lifetime investment, so getting and keeping your finances in order is crucial.

Check your credit score, be timely with all credit payments and keep your debt as low as possible. Preapproval for a home loan will evaluate your credit score and your ability to pay for a loan. The preapproval letter that you receive from a lender will define the price point of your home search and enable you to more successfully negotiate a new home purchase.

Find a real estate agent who understands your needs and can guide you through the home-buying process. Your agent will help you select a well-located home that not only fits your needs but also will give you good resale value.

Stay level-headed, and don’t let your buying decisions be influenced by emotion. Let practicality and financial comfort be your best guidance. Don’t criticize the small details of a home that can be easily remedied.

When figuring out your budget, don’t forget to factor in what your estimated closing costs will be in addition to your down payment. Be sure to keep your credit in check, and don’t make any large purchases prior to closing a deal.

Call or email me, and I can help you avoid any pitfalls that could get in the way of your first home purchase.

Applying for a Mortgage or Refinance? Don’t Do This

Many borrowers think that closing out one or two credit cards prior to applying for a mortgage will enhance their credit scores and make them more attractive candidates for new loans.

Contrary to the thought that removing credit card spending temptations will favor getting the best loan, lenders look more favorably upon borrowers who keep credit accounts open and resist the urge to use them. The bottom line is that good credit scores are awarded to those who barely use their credit.

There has been extensive analysis by FICO, the firm that is the root of credit score formulas, on the subject of what would be a low-risk borrower. They have concluded that consumers who have access to a lot of credit but use it frugally are the best candidates for loans.

Approximately one-third of your credit score is the result of taking your total debt and dividing it by how much credit you could carry if you used all of your available credit. This is the debt utilization ratio. Financial advisors recommend that you try to keep this ratio under 30%, so keeping cards with zero balances will help this ratio that is so important in determining your FICO score.

When you prepare to get a new loan or refinance, work on paying off your credit cards, but don’t close the accounts. Your best loan terms will come when you can get your FICO score to 760 or higher.

If you do need to close a credit account because of excessive fees and non-use, pay down your other credit at the same time so your debt utilization ratio isn’t impacted. Good payment history on any closed account will follow you for 10 years.

Please give me a call so I can help you analyze your credit report and see where you can make improvements for the best loan terms possible.

Down Payment Assistance May Be Available to You

Many first-time home buyers are unable to come up with the down payment needed to buy a home. It can take years to save the funds needed to close on a home. With home values on the rise, the cost of a down payment rises proportionately.

Down payment assistance (DPA) programs are offered by most local county, city and state governments. It will depend on where you live as to what is available.

There are two categories of DPA loans. Most programs will involve incorporating the down payment assistance into a small loan. If you were attempting to save a 20% down payment on a $200,000 home, your local government entity may have a program where it would loan you a percentage of the $40,000 down payment, allowing you to step into a home purchase sooner. The other type of DPA is where the assistance is given to you in the form of a grant.

Generally, DPA programs are limited to first-time buyers. Some programs may have certain income requirements in an effort to help lower-income families. The home must be owner-occupied, not a rental. Each program is different, with some requiring you to contribute a percentage of your own cash to close.

If you qualify for a down payment assistance program, it will enable you to be a homeowner much sooner than if you had to devote more years to saving. Please contact me so I can see what programs are available and if you qualify.

A Step-by-Step Guide to Getting Your Mortgage

Being familiar with the steps that you should take to prepare for the mortgage approval process will allow you to have the best loan option. You will also be able to better negotiate the purchase of a home as a preapproved buyer.

1. To get your credit mortgage ready, check your credit history and your credit score. The higher your credit score, the better loan terms you can get. FHA loans require a minimum credit score of 580. Conventional loans can be processed with a minimum score of 620. If you need to get your score up, work on paying down credit balances.

2. Before meeting with a lender, prepare a budget that includes a mortgage payment that you can comfortably afford. This will be easier once you figure your debt-to-income ratio, which ideally should be 43% or less.

3. Your partnering lender will help you get preapproved for a loan. The lender will review and verify all of the financial information and documents that you provide.

4. Once your creditworthiness has been determined by your lender and your loan options presented, you can choose which kind of mortgage works best for you. Conventional loans, FHA loans and VA loans will likely be what are available to you.

5. Once you are preapproved and you have an accepted offer on a home, it is time to apply for a loan for your purchase. The lender should have most of the documents needed for final approval. An appraisal verifying the purchase price will be part of the final approval.

6. The closing process now begins. The average time to finalize your loan and close on your home is 45 days.

Knowing these steps will make your loan process much easier. Please call me for an appointment so we can begin.

What to Consider in Co-Signing a Mortgage

There are several things to consider when you are asked or volunteer to co-sign a loan for a home purchase. You will want to make an informed decision, since you will be putting your creditworthiness on the line to guarantee a loan in order to help a primary borrower who can’t qualify on their own merits. Co-signing a mortgage could put you at financial risk and jeopardize your relationship with the borrower.

As a co-signer, you will assume responsibility for payment of the loan and any associated penalty fees in the event the primary signer defaults on the loan. There would be heavy consequences to your credit for not taking over payments.

The co-signer’s role is mostly that of enabling the primary borrower to qualify for the loan. It is important that the borrower be able to comfortably make the payments without the co-signer’s help. Otherwise, a more affordable home should be considered.

The primary borrower will usually seek a family member or friend to co-sign in order to add strength to the borrower’s mortgage application. A co-signer with a high credit score, good credit history and ample income to cover payments in the event the borrower defaults will be the best candidate for co-signing.

Conventional loans have less restrictive criteria than FHA loans for qualifying as a co-signer. With both types of loans, your name cannot be on the title. These conditions may influence your decision to co-sign or not. Contact me for more information on what needs to be considered when co-signing a loan.

Buying a House by Yourself? Here Are 5 Tips

Purchasing a home as a single buyer is a financially savvy move. Not only do you have the opportunity to make all of the home-buying decisions, but you will also be able to increase the value of your financial profile and build personal wealth. Here are a few pieces of advice to assist you.

1. Make sure your credit report is accurate, and check your credit score with all of the credit reporting agencies. If you need to increase your score, work on making all of your payments on time and eliminating some of your credit. Your creditworthiness will determine the optimum interest rate and terms that you will qualify for.

2. Look at your debt-to-income ratio. Your lender can help determine if you are carrying too much debt relative to your income. Start paying down your debt if your ratio is deemed too high.

3. Whether you are seeking an FHA or a conventional loan, you will need a down payment and closing cost funds. Commit to setting aside a percentage of your income to build the largest amount of down payment reserves that you can.

4. Home ownership typically costs more than renting. Determining your budget ahead of time will give you the cushion you will need for home repairs and maintenance.

5. Make a list of what you must have in a home. You should also decide what kind of home you want. For example, do you want a detached single-family residence or a condo? Your real estate agent can help you with these decisions.

The success of buying a home by yourself also lies in having the right lender to take you through the preapproval process. Please call or email me today so I can assist in making it happen for you.

Is a Preapproval Necessary to Buy a Home?

Your home-buying experience will only be successful if you start the process by getting a loan preapproval. A home loan preapproval will be a firm estimate of what your lender is willing to offer you once you find your perfect home. It enables you to narrow your property search to homes that you know you can afford. Many real estate agents will only work with buyers who have been preapproved.

A mortgage preapproval should be part of any purchase offer that you submit to a seller. Having a preapproval letter in hand allows you to act immediately when you locate your ideal property. It adds strength to your offer and assures the seller that you are a qualified buyer. In a competitive market, it will increase your chances of getting your offer accepted. Knowing you are preapproved for a certain price point of home will also lessen the stress that comes with the home-buying process.

The preapproval process will be very thorough in gathering and evaluating your debt-to-income ratio, income and assets. Once you have shown that you have a good credit score and the lender has verified all of your financial information, a preapproval will be generated. Generally, the preapproval letter will state what amount you are qualified to borrow and will be subject to the selected property appraising at the contract price.

If you are ready to look for a home, please give me a call so I can get the preapproval process started for you.

Here’s How Your Credit Score Is Calculated

Your credit score is the most important factor in determining if you qualify for a loan. It is also crucial in shaping the terms of your loan. A credit score is a three-digit number that a lender uses to decide how trustworthy you are when it comes to managing your finances and your ability to repay a loan. The higher your score, the less risk you are to the lender and the more optimal the terms of your loan will be. Credit reporting agencies use seven primary factors in calculating your score.

1. Your payment history is the most important because it reflects on-time payments, missed payments and those that were late.

2. The ratio of the amount of credit you are using against your available credit is factored in. Try to keep credit balances no more than 30% of the available credit.

3. Total debt will be part of the credit score calculation. Loans, collections, credit cards and other credit accounts are part of the equation.

4. The credit score will reflect what the mix of your credit accounts are. It looks at auto loans, mortgages, store credit and credit cards.

5. The age of your credit accounts are an element of your credit score. Older histories have less impact on your score than more recent credit histories. Lenders want to see established histories of on-time payments.

6. Inquiries into your credit by various entities are known as hard inquiries. Too many inquiries will lower your score.

7. Credit scores are impacted by debts that show up in public records. These include tax liens, civil judgments and bankruptcies. Paying off any of these liabilities will increase your credit score.

Call or email me and I will help you navigate what impacts your credit score so you can have the best loan options.

4 Tips to Help You Save for a Home

Saving for a down payment for a home doesn’t have to be a big challenge, nor does it have to have a big impact on your everyday budget. If you can build up a big enough savings account without having to drastically change your spending habits, then you can be motivated to do what you need to do to make homeownership a reality.

1. The easiest way to start your savings plan is to have a portion of your paycheck directly deposited into your savings account. If your employer will agree to make a split deposit on your behalf, this is the perfect way to not spend your entire income on everyday incidentals. If what goes into your savings is a reasonable amount, you likely won’t miss it, and you can still meet your essential monthly spending obligations.

2. Analyze where you spend small amounts of money on a daily basis. Money spent on coffee and snacks or drinks after work can add up to as much as $50 a day. Cut back on these nonessential items and direct those funds to your savings.

3. Small change adds up. Supplement your larger checking account transfers with periodic smaller amounts that don’t impact your budget.

4. Reduce your overhead by downgrading your living space and monthly rent. Live small, and you will find that the money saved can quickly increase your savings balance.

Call or email me today, and we can evaluate your financial situation and come up with a custom plan to help you save.