You want to buy your first home or upgrade to a larger home for your family. Financing your purchase is the key to a wise real estate purchase. It can be difficult to know how and where to begin. Here are some mortgage tips, with market comments and a list of tips on how to getting the best home loan.
First, It's Not Too Late.
Many recent news headlines feature the bad news that sells papers. Rising interest rates, home sales down, and the threat of a bursting real estate bubble! The reality is that while interest rates have crept up a bit over the past several years, rates are still historically low if you look at the big picture. Anyone who thinks that 6.5% - 7% is a high interest rate has not been in the business for very long! And as to The Bubble, if you read past the headlines, the local experts predict a continuation of rising prices with more and better opportunities for buyers right now. There are more choices, and motivated sellers are setting their asking prices closer to reality.
Fantastic home buys are waiting for you right now right now. If you have the motivation, vision, and are willing to plan for your future, it's not too late to buy your Hawaii home. And now more than ever, there is a mortgage for just about everyone. Special programs exist for small or no down payment, good and bad credit, and self-employed people with flimsy financial records. There is almost always a way to do it.
For some people, it will take patience, restraint and careful planning to get there. If you just bought a big shiny new truck or have a stack of credit card bills on the kitchen counter you will have to rethink your priorities.. You can still buy a home if you are motivated and focused. Follow the guidelines below and you can get a good mortgage and achieve your real estate dreams.
Everybody comes into the real estate market with a different perspective and level of experience, so there is no "one size fits all" advice. These general rules apply to almost everyone when it comes to getting the money to buy a home. So here are some of the do's and don'ts that you should consider.
1. Get Pre-Approved Before House Hunting! To get pre-qualified, you give a mortgage specialist information on your income, debts, and perhaps a quick credit check. That means the resulting estimate of the maximum mortgage you can obtain is exactly that - an estimate. Pre-approval is different: you must authorize your lender to obtain detailed credit reports, verify your income and debts, obtain employment history, and determine your income-to-debt ratio along with other underwriting steps. This puts you much closer to obtaining a loan and locking in a rate and term. You'll enjoy an advantage over other prospective buyers if you've gotten yourself pre-approved for a loan before you even start your home search. Pre-approval generally means that you are good to go, subject to your chosen house being approved as security for the loan. The appraisal of the property you want to purchase is one of the last crucial steps.
2. Be Realistic. Don't try shooting for that five-bedroom house if it's going to be too much of a stretch in your current budget. Lenders consider what's known in the industry as "payment shock" when approving loans. Somebody who goes from a relatively small monthly housing cost (rental or mortgage) to a huge one may not qualify easily for a mortgage or may end up having to cover too much loan with too little money. To get into the market, plan to make a compromise of what you want vs. what you can afford. You are in good company, as the $ 500,000 buyers want what costs $ 1,000,000, and even the million-dollar buyers dream about the two-million dollar homes!
3. Forget Paris. Forget that new car, and the big screen TV, too. Don't make any big purchases over the next couple of months. Any purchases you make in the 3 - 6 months before buying a home will leave less money available for the down payment as well as mortgage payments. A significant debt such as a $15,000 auto loan will look bad to the mortgage lender's computerized credit scoring systems. Plus, the underwriter won't want to see you adding a couple of hundred dollars per month to your monthly expenses. Ideally, your total debt should be no more than 36 - 40% percent of your gross monthly income. If you have great credit this number is flexible.
4. Save, save, save! Increase the size of the down payment you're able to make by saving as much as possible, as often as possible. Don't put the savings into something volatile, such as an individual stock. Keep it invested in accounts that offer reasonable rates of return and don't tie your funds up too long. If your lender says you need more cash down, put yourself on a regular savings plan and watch it grow. Anything worth doing takes planning and commitment, so financing your home purchase is no exception.
5. Don't Be Late! Make loan and other debt payments on time, especially over the months leading up to the filing of your mortgage application. It sounds simple, but every 30-, 60- or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will determine how good a loan you get - if you get one at all. It also directly determines your interest rate. Many of the "teaser" rates you see advertised as well as the no and low down payment plans require a high credit score.
6. Pay Off Loans. Ask your lender if you should consider paying off more debts even if it means putting down a smaller amount at closing. This will leave you with a larger mortgage, but it will allow you to replace non tax-deductible, high-interest rate debt with lower-rate mortgage debt that features deductible interest. Ask your tax specialist what will work best for you. If you don't have a tax advisor, it is well worth consulting with one.
7. No New Debts. Get the mortgage first. Numerous credit inquiries, such as new applications for credit cards or auto loans, can hurt your credit score big-time, especially if they pop up in the months before you want to buy a home. Car purchases made by novice home buyers are notorious deal-killers if made shortly before trying to get a mortgage.
8. Know Your Financial Style. Don't forget what kind of money personality you have when getting a mortgage so you can choose wisely from the many mortgage choices. If you are a risk taker, be very cautions of the creative financing options that are widely advertised. These products may tempt you to make foolish choices that can endanger your financial future. A good mortgage broker will explain the pros and cons of the conservative 30 year mortgages, and the creative options now available, and whether the riskier adjustable mortgages are wise for you.
9. Tough Choices. If times get hard and you can't make all your payments, pay your mortgage first, followed by any installment loans such as auto loans, and credit card payments last. That's because credit scoring systems look at the performance of similar loans first when deciding what type of score to assign. It will give the most weight to the performance of another mortgage, for example, then the performance of something like an auto loan, which features fixed payments and a fixed rate the way many mortgages do. Lastly, it would evaluate the payment performance of so-called "revolving" loans, like credit cards, which feature variable payments that fluctuate with the outstanding balance.
10. Too Good To Be True. There are local banks, mortgage companies, credit unions, and savings and loans. Everyone wants to give you a mortgage because the profits are astronomical, and so are the fees they may charge. Don't believe everything you see and hear! There are clever TV lenders, internet loans, and ads in magazines and the newspaper with outrageous and impossible claims. Many unscrupulous loan companies have cropped up whose practices are unethical or illegal. Their goal is to get your loan fees into their pockets, not to help you finance your home the best way for your purposes. If it sounds too good to be true, it is provably a scam!
A reputable lender operating with a physical presence in your home state can't run and hide. Ask family, friends, or your real estate professional to guide you to the best sources of financing your home. Your Realtor has already assisted hundreds of homebuyers through this process and worked with dozens of lenders. It is crucial that you select someone with the experience, credentials, and attitude that you need to be successful in this complex financial transaction.
Good luck with your home financing, and remember that in this market, like all markets, there are great opportunities waiting those who set their goals, are motivated, and take the time to plan and prepare.
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