In today’s market, the opportunity to own an affordable home is has become easier for many. Falling real estate prices and low interest rates have transformed once-illusive properties into real possibilities. Despite the accommodating climate, real estate regulations have taken a more rigid form, requiring homebuyers to meet minimum lending requirements before securing a mortgage. For some, that may require that they begin some personal credit repair. Whether you are a seasoned property owner or first-time buyer, follow the steps below to pave the way toward an easier process.
- Get serious about credit repair. Good credit is the most effective financial tool in your belt, so use it to your advantage. FHA-approved homes require a minimum FICO credit score of 620, while regular properties usually require a score of 720 or higher for the best interest rate. If you haven’t committed to credit repair, the time is now. Attention to unfair credit reporting, overdue accounts, exorbitant debt, and excessive credit accounts could save you thousands in mortgage interest. Obtain a copy of your credit report (free from Lexington Law with a credit consultation) and outline the problem areas. If you see unfair or inaccurate information, begin investigating, challenging, or disputing with your creditors and, where applicable, the credit bureaus. If you are feeling overwhelmed, ask Lexington Law for help.
- Save, save, save. Gone are the days of no-money-down mortgages; most lenders require a minimum down payment of 3.5 to 10 percent. After achieving success in credit repair, start saving for a future down payment. A high credit score coupled with a hefty savings account is bound to score a competitive interest rate.
- Examine your income and expenses. Affordability is the defining factor of any home purchase. Before falling in love with an expensive property, sit down and determine your price range. While you may be able to afford a $2,000 per month mortgage, lenders could view your situation differently. Most allow a maximum “front-end” ratio of 33 percent. This means that your mortgage, property taxes, and insurance costs should not exceed 33 percent of your gross monthly income. Your lender will also consider revolving debt load in addition to taxes and insurance costs, also known as the “back-end” ratio. This number usually carries a maximum of 50 percent without a large down payment. As you can see, affordability isn’t always so cut-and-dry. Credit repair and savings are paramount in the buying process.
- Consider the past. Established homeowners understand the importance of a well-maintained mortgage record, especially when the time to buy arises once again. Many lenders offer conditional mortgages to weed out high-risk borrowers. If your record displays a foreclosure, for example, buying a new home could be a difficult task. In the interest of full disclosure, provide potential lenders with up-front information about your real estate past. Good credit and a sizable down payment could help you overcome the stigma of past mistakes.
- Work with a qualified lender. Lenders rely on the business of homebuyers, so why not find one with your best interests in mind? Shop around for a company that boasts an excellent service record and can provide competitive rates. Use a 30-day timeframe to find the best company in your area, and ask for approval terms and rates. The process of comparison will help you understand your best option.
Buying a home is a big decision, one best made with the right tools and strategies. Take an investigative approach and look deeper into your finances and the changing market. Your efforts could make all the difference.