Preparing Financially for the Mortgage Process

Purchasing a home is exciting and adventurous. Home buyers, particularly first-time home buyers, typically don’t know a lot about the process of financing a home. To avoid making mistakes, you need to know what you should expect. It is important to consider the state of your credit, the additional costs besides just the down payment, and the important questions dealing with the future.

 

The Credit Aspect

Your credit score is one of the first things a lender will look at when you apply for a mortgage. To cut through all that confusion, here are five tips you can act on right now:

  • Check your credit reports for free once a year through the three credit bureaus: Equifax, Experian, and TransUnion. Why all three? Because the information in each of the three bureaus’ reports can differ. If one or all of the reports include mistakes, your credit score may be negatively affected, and you may need to address the errors before going house shopping.
  • Be strategic with credit card use. The percentage of your credit limit that you use every month can affect your score. Make sure your balance doesn’t come too close to your limit.
  • The simplest and most important tip? Pay off your balance each month. To maintain a healthy score, pay off the balance before the due date. Anything after 30 days past the due date can spell very bad news for your score.
  • Be consistent. Good credit behavior over the long term will keep your score high.
  • Don’t take on more credit. If you apply for several different credit cards, you’re sending a message that you may have maxed out your other accounts

 

Save enough for the down payment and other additional fees

You should plan to make a down payment of 3.5% – 5% at the very least when you are determining affordability. It is important to consider that down payments are not the only costs associated with the purchase of a home. Your lender should be able to provide you with a breakdown of your costs that you will be paying upfront and on a monthly basis. Here are some basic tips to help you save for the costs associated with buying a home:

  • Start a budget: Making a budget allows you to see your expenses, how much money is coming in, and what is left over to save or pay off debts. When you have a savings goal it, helps prioritize your money by eliminating or cutting down on unnecessary expenses.
  • Automate: Once you have created a budget and figured out how much you can comfortably save each month or paycheck, set up a specific amount or percentage of your paycheck to go to savings automatically. For some, it helps to open up an entirely separate savings account for their home’s down payment and expenses. This method allows you to see how much you are saving specifically for the home buying process and keeps you from accidentally spending this money on something other than your new home.
  • Increase your income: If you are worried about cutting back expenses, or just want to save for your down payment faster, consider finding ways to increase your income. Some ideas include working overtime, getting a second job, or finding alternative ways to making money such as selling items online.
  • Save any unexpected money: When you get a large sum of money, such as a bonus or your tax refund, itis all too easy to take on the extra cash and purchase that one expensive thing you’ve had your eye on for months. Instead of going on a shopping spree, take that money and put it into your savings right away to help you achieve your dream of homeownership sooner.

 

Affordability now and in the future

Regardless of the level of income you have today, you need to figure out what the future may hold before you sign on the dotted line. For example, if you’re planning to have kids sometime down the road, how will these happy additions impact your family income? What effect will job changes have on your current income level? And have you planned for monthly payments into your rainy day savings account?

Everyone who looks to buy a home will have a payment amount that is affordable today, but in the face of your answers to the questions above, will that number still work for you down the road? These are some questions to consider as you think about homeownership.

 

Feel free to talk with a loan officer in your area to determine if homeownership is the right path for you!

When is Owning Better Than Renting?

 

Rent or Buy a House

When is owning better than renting?

According to a new analysis by Zillow, buying is a better financial decision than renting for most buyers who intend to live in a home for at least three years.

Zillow analyzed the “breakeven horizon” in more than 200 metropolitan areas and 7,500 U.S. cities to determine how many years it would take before owning a home becomes more financially advantageous than renting the same home. In more than 75 percent of the metro markets analyzed, a homeowner would break even after three years or less of owning a home.

All possible costs associated with buying and renting were incorporated into the analysis, including downpayment, mortgage and rental payments, transaction costs, property taxes, utilities, maintenance costs, tax deductions and opportunity costs, while adjusting for inflation and forecasted home value and rental price appreciation.

In some metro areas where home values fell dramatically during the housing recession, homebuyers break even after less than two years of owning a home. The Miami-Ft. Lauderdale metro is among the most favorable for buying, with homeowners breaking even after only 1.6 years of living in the home. However, in the San Jose metro area, where home values are among the highest in the nation, a buyer must commit to living in their home for 8.3 years before they will break even.

“Across most of the country, historic levels of affordability make buying a home a better decision than ever, especially considering rents have risen more than five percent over the past year,” said Stan Humphries, Zillow chief economist. “This is the first analysis of metros and cities that presents the buy versus rent decision in an intuitive way, by telling consumers how long they must live in the home before buying breaks even with renting financially. It’s much more understandable, and therefore useful, than the abstract notion of a simple ratio of prices to rents. If we want consumers to act on market information, we have to align it with how they think about the issue and make it straight-forward to grasp.”

Original Sources: Zillow, Forbes

Are you looking to make the leap from renting to home ownership? Here are some additional links regarding the benefits of home ownership that you may find useful:

Are you ready to discuss your home financing options with a licensed mortgage professional? Contact an Inlanta Mortgage loan professional near you.

Inlanta Mortgage offers Fannie Mae/Freddie Mac agency products,  as well as a full suite of jumbo and portfolio programs. The company is  fully delegated HUD-FHA including FHA 203K, VA, and USDA approved.  Inlanta Mortgage also offers numerous state bond agency programs. Review Inlanta’s mortgage loan programs here.

Inlanta Mortgage is a multi-state mortgage banker based out of Brookfield, Wisconsin. NMLS# 1016. Inlanta Mortgage is proud to be a recent recipient of a 2012 Top Workplace Award.