Buying a New Home? Plan Ahead! Good Advice from a Mortgage Broker
The single largest financial investment most people will ever make. and it should be treated as such. These are important factors that will determine the value of home you can afford.
Pre-Approval
Before you begin house hunting, always get pre-approved. A quick five-minute conversation will allow for a review of your income, liabilities and credit history. Once this is reviewed, we will be able to determine the amount you are eligible for in a mortgage loan. Supported by a pre-approval letter, this will assist you and your real estate agent in targeting the right homes in your price range.
Down Payment
Save for a down payment. Typically, you must put at least 3.5% (FHA) or 5% (conventional) down. (VA Loans require 0% down). Gifting is allowed (in particular, FHA) but there are specific requirements for each eligible program. Other programs allow for as little as 3% down but again, there are specific qualifying guidelines. Regardless, start saving now.
Credit History/Credit Score
Minimum credit scores are required for all loans. For FHA loans, a score of 620 is standard while 660/680 is the minimum for conventional loans. Credit bureaus review your documented credit history and give a score depending on your commitment to paying on time. There is a direct correlation between a higher credit score and a lower interest rate that will save you money. Non-traditional credit is also available in lieu of a credit history.
Monthly Financing
Determine how much you can afford in a monthly mortgage payment. After we, as lenders, have calculated the maximum of what you can afford, only YOU can determine what amount you feel comfortable paying each month. This will determine the price point of home you will want to purchase. Take into consideration all of your expenses including your monthly payments (credit cards, car, etc.), auto insurance, grocery and other shopping expenses, utilities, phone bills, savings and retirement funds and entertainment/leisure costs.
Inside a Mortgage Payment
Don’t be misled by simplified mortgage calculators on websites. Home buyers need to be fully aware of what goes into a mortgage payment. Principal, Interest, Taxes, Insurance (PITI) and Mortgage Insurance (when required) can all be a part of a mortgage payment. Mortgage calculators cannot be precise without these four (or 5) pieces of information.
James Grapes is a Spokane homes for sale expert and writes for Spokane realtor web sites.