Buying Secret: Get Pre-Approved for Your Home Loan

There’s a big difference between a buyer being pre-qualified and a buyer who has a pre-approved mortgage. Anybody can get pre-qualified for a loan. Getting pre-approved means a lender has looked at all of your financial information and they’ve let you know how much you can afford and how much they will lend you. Being pre-approved will save you a lot of time and energy so you are not running around looking at houses you can’t afford. It also gives you the opportunity to shop around for the best deal and the best interest rates. Do your research: Learn about junk fees, processing fees or points and make sure there aren’t any hidden costs in the loan.

Millions of Consumers Getting a Credit Score Boost

An overhaul in how several major credit reporting agencies factor in negative credit information is prompting millions of consumers’ credit scores to rise. Collection events were struck from 8 million consumers’ credit reports in the 12 months ending in June. The New York Federal Reserve reported Tuesday that consumers who had at least one collections account removed from their credit reports are seeing an 11-point increase to their scores.

Critics have long claimed such dings to scores are prone to errors or that they’ve unfairly kept many out of the borrowing market. Equifax, Experian PLC, and TransUnion have all agreed to revamp reports, which stems from a 2015 settlement with state attorneys general on the matter. In the settlement, the firms agreed to remove some non-loan related items that were sent to collection firms, such as gym memberships, library fines, and traffic tickets. They also agreed to strike medical-debt collections that have been paid by a patient’s insurance company.

The majority of consumers who benefited from the recent changes are those who had credit scores below 660 before the collection events were removed, according to the New York Fed.

This could be good news for potential home buyers, as better credit scores are a big factor lenders use in granting cheaper rates for mortgages. And relatively small shifts in scores can make a big difference on loan affordability. A recent study from LendingTree showed that consumers who can raise their credit scores from “fair” (580-669) to “very good” (740-799) could potentially save $29,106 in mortgage costs.

Source: “Overhaul Boosts Credit Scores of Millions of U.S. Consumers,” The Wall Street Journal (Aug. 15, 2018)

Preparing Your Home To Sell

One of the most important things about selling your home is to make it feel inviting to buyers. You want them to come in and feel welcome and want them to stay to look around. You can do this by making sure your home is clutter free, always remember less is more! Local Home Staging Resources will help you see what needs to be done to give you the maximum exposure you need to get your home sold!

With the help of professional advice, you may be able to:

• Obtain the best possible price for your home.
• Negotiate the most favorable terms.
• Secure a buyer in the shortest period of time.
• Relieve you of the stress and inconvenience that can occur when selling a home.

Curb Appeal

• First impressions go a long way
• Flowers, fresh bark dust
• Swept driveways & walkways
• Yard maintained

Interior

• De-clutter (less is more)
• Take down family photos (you want buyers looking at the home)
• Paint soft neutral colors (if needed)
• Make home light & bright (turn lights)
• Make sure curtains are open

Clean

• Carpets (if needed)
• Counters, Refrigerator, stove, ovens
• Empty garbage daily
• All Beds made
• Dirty clothes picked up and put away
• Dishes put away (do not leave dishes in sink)
• Remove pets (during showings if possible)

Article Source: realestate.columbian.com

5 THINGS YOU MUST DO BEFORE BUYING A HOME

1. IMPROVE YOUR CREDIT SCORE
A high credit score snags you the best deals. Below 660 or 680, you’re either going to have to pay sizable fees or a high down payment. 700-720 will get you a good deal and 750 and above will garner the best rates.
2. FIGURE OUT WHAT YOU CAN AFFORD
FHA loan – Your monthly payment can’t exceed 31% of your monthly income. Conventional home loan monthly payment should not exceed 28% of monthly income.
3. SAVE FOR DOWN PAYMENT, CLOSING COSTS
You’ll need to save between 3%-20% of the house price for a down payment.
4. BUILD A HEALTHY SAVINGS ACCOUNT
Your lender wants to know that you’re not living paycheck to paycheck.
5. GET PREAPPROVED FOR A MORTGAGE
This is the #1 thing you should have in order. How do you know what you can afford if you aren’t preapproved?

Article Source: bankrate.com

Going Green

Five money-saving green upgrades

Going green is great for the environment, but that’s not the only benefit. When you make green upgrades in your home, it can also lead to some major savings.

  1. Solar panels: The upfront cost is big, but the long-term savings are huge. Solar panels will cost several thousand dollars to install, but ongoing maintenance costs are very low, and a typical system could save you hundreds of dollars per year. You can even sell your surplus electricity.
  2. Wood furnace: Wood-burning furnaces are relatively inexpensive, and though the yearly savings aren’t as dramatic (about 10% on heating bills), it adds up over the long run.
  3. Insulation: There’s a good chance your insulation isn’t very efficient, especially in older homes. Look into installing floor, cavity, wall, and loft insulation to reduce your heating bills.
  4. Rain barrels: Rain barrels are extremely inexpensive, and provide gallons of free water to use when you wash your car or water your garden.
  5. Geothermal system: OK, so the price tag is scary at first. A geothermal system uses the earth’s temperature to heat and cool your home, but can cost $30,000 to install. But tax credits allow you to get a lot of that money back, and the energy savings average about $1,900 per year. If you plan to be in your home for a decade or two, it’s a great investment.

What affects Property Values?

Some the features that increase property values are obvious—like a remodeled bathroom, a modern kitchen, or a sought-after neighborhood. But here are a few features and circumstances you have not have realized can affect property values.

  1. The neighbors: Not every neighborhood or community has an HOA that can keep the neighbors from going overboard with decorations or neglecting to care for their home. Homes adjacent to crazy neighbors can potentially be undervalued.
  2. Trendy groceries and coffee: Recent statistics suggest that if your home is a short walk from popular grocery stores like Whole Foods or coffee chains like Starbucks, it can actually appreciate faster than the national average.
  3. Mature trees: A big beautiful tree in the front yard is enviable, and it’s not something that can be easily added to any home. Homes with mature trees tend to get a little boost in value.
  4. Parking: This isn’t too much of an issue if you live in the suburbs or in a rural area, but residents in dense cities can have real problems with parking, and homeowners might need to rent a spot just to guarantee a place to park each night. That’s why having guaranteed parking in urban areas will raise property values.
  5. The front entrance: First impressions matter to buyers—many will cross a home off their list within 10 seconds of stepping through the front door. An appealing front door, a friendly entryway, and a functioning doorbell are all necessities for getting top dollar.

HOUSE CARE CALENDAR:  A Seasonal Guide to Maintaining Your Home

From summer vacations to winter holidays, it seems each season offers the perfect excuse to put off our to-do list. But be careful, homeowners: neglecting your home’s maintenance could put your personal safety—and one of your largest financial investments—at serious risk.

In no time at all, small problems can lead to extensive and expensive repairs. And even if you avoid a catastrophe, those minor issues can still have a big impact. Properties that are not well maintained can lose 10 percent (or more) of their appraised value.1

The good news is, by dedicating a few hours each season to properly maintaining your home, you can ensure a safe living environment for you and your family … and actually increase the value of your home by one percent annually!1 You just need to know where and how to spend your time.

Use the following checklist as a guide to maintaining your home and lawn throughout the year. It’s applicable for all climates, so please share it with friends and family members who you think could benefit, no matter where their home is located.

 Spring

After a long, cold winter, many of us look forward to a fresh start in the spring. Wash away the winter grime, open the windows, and prepare your home for warmer weather and backyard barbecues.

Inside

  • Conduct Annual Spring Cleaning
    Be sure to tackle those areas that may have gone neglected—such as your blinds, baseboards and fan blades—as well as appliances, including your refrigerator, dishwasher, oven and range hood. Clear out clutter and clothes you no longer wear, and toss old and expired food and medications.
  • Shut Down Heating System
    Depending on the type of heating system you have, you may need to shut your system down when not in use. Check the manufacturer’s instructions for proper procedures.
  • Tune Up A/C
    If your home has central air conditioning, schedule an annual tune-up with your HVAC technician. If you have a portable or window unit, be sure to follow the manufacturer’s instructions for proper maintenance.2
  • Check Plumbing
    It’s a good idea to periodically check your plumbing to spot any leaks or maintenance issues. Look for evidence of leaks—such as water stains on the ceiling—and check for dripping faucets or running toilets that need to be addressed. Inspect your hot water heater for sediment build up. Check your sump pump (if you have one) to ensure it’s working properly.3
  • Inspect Smoke Alarm and Carbon Monoxide Detectors
    Check that your smoke and carbon monoxide detectors are functioning properly. Batteries should be replaced every six months, so change them now and again in the fall. Follow the manufacturer’s instructions to test your individual devices. And even properly functioning devices should be replaced at least every 10 years, or per the manufacturer’s recommendation.4 

Outside 

  • Inspect Perimeter of Home
    Walk around your house and look for any signs of damage or wear and tear that should be addressed. Are there cracks in the foundation? Peeling paint? Loose or missing roof shingles? Make a plan to make needed repairs yourself or hire a contractor.
  • Clean Home’s Exterior
    Wash windows and clean and replace screens if they were removed during the winter months. For the home’s facade, it’s generally advisable to use the gentlest method that is effective. A simple garden hose will work in most cases.5
  • Clean Gutters and Downspouts
    Gutters and downspouts should be cleaned at least twice a year. Neglected gutters can cause water damage to a home, so make sure yours are clean and free of debris. If your gutters have screens, you may be able to decrease the frequency of cleanings, but they should still be checked periodically.6 
  • Rake Leaves
    Gently rake your lawn to remove leaves and debris. Too many leaves can cause an excessive layer of thatch, which can damage the roots of your lawn. They can also harbor disease-causing organisms and insects.7 However, take care because overly vigorous raking can damage new grass shoots.
  • Seed or Sod Lawn
    If you have bare spots, spring is a good time to seed or lay new sod so you can enjoy a beautiful lawn throughout the remainder of the year. The peak summer heat can be too harsh for a new lawn. If you miss this window, early fall is another good time to plant.8
  • Apply a Pre-Emergent Herbicide
    While a healthy lawn is the best deterrent for weeds, some homeowners choose to use a pre-emergent herbicide in the spring to minimize weeds. When applied at the right time, it can be effective in preventing weeds from germinating. However, a pre-emergent herbicide will also prevent grass seeds from germinating, so only use it if you don’t plan to seed or sod in the spring.
  • Plant Flowers
    After a long winter, planting annuals and spring perennials is a great way to brighten up your garden. It’s also a good time to prune existing flowers and shrubs and remove and compost any dead plants.
  • Mulch Beds
    A layer of fresh mulch helps to suppress weeds, retain moisture and moderate soil temperature. However, be sure to strip away old mulch at least every three years to prevent excessive buildup.9
  • Fertilize Lawn
    Depending on your grass type, an application of fertilizer in the spring may help promote new leaf and root growth, keep your lawn healthy, and reduce weeds.10
  • Tune Up Lawn Mower
    Send your lawn mower out for a professional tune-up and to have the blades sharpened before the mowing season starts.11
  • Inspect Sprinkler System
    If you have a sprinkler system, check that it’s working properly and make repairs as needed
  • Check the Deck
    If you have a deck or patio, inspect it for signs of damage or deterioration that may have occurred over the winter. Then clean it thoroughly and apply a fresh coat of stain if needed.
  • Prepare Pool
    If you own a pool, warmer weather signals the start of pool season. Be sure to follow best practices for your particular pool to ensure proper maintenance and safety. 

Summer

Summer is generally the time to relax and enjoy your home, but a little time devoted to maintenance will help ensure it looks great and runs efficiently throughout the season.

Inside

  • Adjust Ceiling Fans
    Make sure they are set to run counter-clockwise in the summer to push air down and create a cooling breeze. Utilizing fans instead of your air conditioner, when possible, will help minimize your utility bills.
  • Clean A/C Filters
    Be sure to clean or replace your filters monthly, particularly if you’re running your air conditioner often.
  • Clear Dryer Vent
    Help cut down on summer utility bills by cleaning your laundry dryer vent at least once a year. Not only will it help cut down on drying times, a neglected dryer poses a serious fire hazard.
  • Check Weather Stripping
    If you’re running your air conditioner in the summer, you’ll want to keep the cold air inside and hot air outside. Check weather stripping around doors and windows to ensure a good seal.

Outside

  • Mow Lawn Regularly
    Your lawn will probably need regular mowing in the summer. Adjust your mower height to the highest setting, as taller grass helps shade the soil to prevent drought and weeds.
  • Water Early in the Morning
    Ensure your lawn and garden get plenty of water during the hot summer months. Experts generally recommend watering in the early morning to minimize evaporation, but be mindful of any watering restrictions in your area, which may limit the time and/or days you are allowed to water.
  • Weed Weekly
    To prevent weeds from taking over your garden and ruining your home’s valuable curb appeal, make a habit of pulling weeds at least once per week.
  • Exterminate Pests
    Remove any standing water and piles of leaves and debris. Inspect your lawn and perimeter of your home for signs of an invasion. If necessary, call a professional exterminator for assistance.

Fall

Fall ushers in another busy season of home maintenance as you prepare your home for the winter weather ahead.

Inside

  • Have Heater Serviced
    To ensure safety and efficiency, it’s a good idea to have your heating system serviced and inspected before you run it for the first time.
  • Shut Down A/C for the Winter
    If you have central air conditioning, you can have it serviced at the same time as your furnace. If you have a portable or window unit, ensure it’s properly sealed or remove it and store it for the winter.
  • Inspect Chimney
    Fire safety experts recommend that you have your chimney inspected annually and cleaned periodically. Complete this task before you start using your fireplace or furnace.
  • Seal Windows and Doors
    Check windows and doors for drafts and caulk or add weatherstripping where necessary.
  • Check Smoke Alarm and Carbon Monoxide Detectors
    If you checked your smoke and carbon monoxide detectors in the spring, they are due for another inspection. Batteries should be replaced every six months, so it’s time to replace them again. Follow the manufacturer’s instructions to test your individual devices. And even properly functioning devices should be replaced at least every 10 years, or per the manufacturer’s recommendation.3

Outside

  • Plant Fall Flowers, Grass and Shrubs
    Fall is a great time to plant perennials, trees, shrubs, cool-season vegetables and bulbs that will bloom in the spring.12 It’s also a good time to reseed or sod your lawn.
  • Rake or Mow Leaves
    Once the leaves start falling, it’s time to pull out your rake. A thick layer of leaves left on your grass can lead to an unhealthy lawn. Or, rather than raking, use a mulching mower to create a natural fertilizer for your lawn.
  • Apply Fall Fertilizer
    If you choose not to use a mulching mower, a fall fertilizer is usually recommended. For best results, aerate your lawn before applying the fertilizer.13
  • Inspect Gutters and Roof
    Inspect your gutters and downspouts and make needed repairs. Check the roof for any broken or loose tiles. Remove fallen leaves and debris.
  • Shut Down Sprinkler System
    If you have a sprinkler system, drain any remaining water and shut it down to prevent damage from freezing temperatures over the winter.
  • Close Pool
    If you have a pool, it’s time to clean and close it up before the winter.

Winter

While it can be tempting to ignore home maintenance issues in the winter, snow and freezing temperatures can do major damage if left untreated. Follow these steps to ensure your house survives the winter months.

Inside 

  • Maintain Heating System
    Check and change filters on your heating system, per the manufacturer’s instructions. If you have a boiler, monitor the water level.
  • Tune Up Generator
    If you own a portable generator, follow the manufacturer’s instructions for proper maintenance. Make sure it’s working before you need it, and stock up on supplies like fuel, oil and filters. 
  • Prevent Frozen Pipes
    Make sure pipes are well insulated, and keep your heat set to a minimum of 55 degrees when you’re away. If pipes are prone to freezing, leave faucets dripping slightly overnight or when away from home. You may also want to open cabinet doors beneath sinks to let in heat.

Outside

  • Drain and Shut Off Outdoor Faucets
    Before the first freeze, drain and shut off outdoor faucets. Place an insulated cover over exposed faucets, and store hoses for the winter.
  • Remove Window Screens
    Removing screens from your windows allows more light in to brighten and warm your home during the dark, cold winter months. Snow can also get trapped between screens and windows, causing damage to window frames and sills.
  • Service Snowblower
    Don’t wait until the first snowstorm of the season to make sure your snowblower is in good working order. Check the manufacturer’s instructions for maintenance or have it serviced by a professional.
  • Stock Up on Ice Melt
    Keep plenty of ice melt, or rock salt, on hand in preparation for winter weather. Look for brands that will keep kids and pets safe without doing damage to your walkway or yard.
  • Watch Out for Ice Dams
    Ice dams are thick ridges of solid ice that can build up along the eaves of your house. They can do major damage to gutters, shingles and siding. Heated cables installed prior to the first winter storm can help.14
  • Check for Snow Buildup on Trees
    Snow can cause tree limbs to break, which can be especially dangerous if they are near your home. Use a broom to periodically remove excess snow.15

While this checklist should not be considered a complete list of your home’s maintenance needs, it can serve as a general seasonal guide. Systems, structures and fixtures will need to be repaired and replaced from time-to-time, as well. The good news is, the investment you make in maintaining your home now will pay off dividends over time.

Keep a record of all your maintenance, repairs and upgrades for future reference, along with receipts. Not only will it help jog your memory, it can make a big impact on buyers when it comes time to sell your home … and potentially result in a higher selling price.

Are you looking for help with home maintenance or repairs? We have an extensive network of trusted contractors and service providers and are happy to provide referrals! Call or email us, and we can connect you with one of our preferred vendors.

Sources:

  1. HouseLogic.com https://www.houselogic.com/organize-maintain/home-maintenance-tips/value-home-maintenance/
  2. Home Advisor  https://www.homeadvisor.com/r/servicing-your-air-conditioner/
  3. Keyes & Sons Plumbing and Heating http://keyes-plumbing.com/things-to-check-in-spring/
  4. Allstate Insurance Blog https://blog.allstate.com/test-smoke-detectors/
  5. Houzz https://www.houzz.com/ideabooks/17268616/list/how-to-wash-your-house
  6. Angie’s List https://www.angieslist.com/articles/why-gutter-cleaning-so-important.htm
  7. Angie’s List https://www.angieslist.com/articles/what-thatch-and-how-does-it-impact-my-lawn.htm
  8. HGTV http://www.hgtv.com/design/outdoor-design/landscaping-and-hardscaping/lawns/top-spring-lawn-care-tips-pictures
  9. This Old House https://www.thisoldhouse.com/more/may-mulching
  10. Lowes https://www.lowes.com/projects/lawn-and-garden/fertilize-your-lawn/project
  11. The New York Times https://www.nytimes.com/guides/realestate/home-maintenance-checklist
  12. Better Homes and Gardens Magazine https://www.bhg.com/gardening/yard/garden-care/what-to-plant-in-the-fall/
  13. The Spruce https://www.thespruce.com/late-fall-fertilizing-2152976
  14. This Old House https://www.thisoldhouse.com/how-to/how-to-get-rid-ice-dams14
  15. Houzz https://www.houzz.com/ideabooks/55572864/list/your-winter-home-maintenance-checklist

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The Home Buyer’s Guide to Getting Mortgage Ready

Don’t wait until you’re ready to move to start preparing financially to buy a home.

If you’re like the vast majority of home buyers, you will choose to finance your purchase with a mortgage loan. By preparing in advance, you can avoid the common delays and roadblocks many buyers face when applying for a mortgage.

The requirements to secure a mortgage may seem overwhelming, especially if you’re a first-time buyer. But we’ve outlined three simple steps to get you started on your path to homeownership.

Even if you’re a current homeowner, it’s a good idea to prepare in advance so you don’t encounter any surprises along the way. Lending requirements have become more rigorous in recent years, and changes to your credit history, debt levels, job type and other factors could impact your chances of approval.

It’s never too early to start preparing to buy a home. Follow these three steps to begin laying the foundation for your future home purchase today!

STEP 1: CHECK YOUR CREDIT SCORE

Your credit score is one of the first things a lender will check to see if you qualify for a loan. It’s a good idea to review your credit report and score yourself before you’re ready to apply for a mortgage. If you have a low score, you will need time to raise it. And sometimes fraudulent activity or erroneous information will appear on your report, which can take months to correct.

The credit score most lenders use is your FICO score, a weighted score developed by the Fair Isaac Corporation that takes into account your payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).1
Source: myFico.com

Base FICO scores range from 300 to 850. A higher FICO score will help you qualify for a lower mortgage interest rate, which will save you money.2

By federal law, you are entitled to one free copy of your credit report every 12 months from each of the three major credit bureaus (Equifax, Experian and Transunion). Request your free credit report at https://www.annualcreditreport.com.

Minimum Score Requirements

To qualify for the lowest interest rates available, you will usually need a FICO score of 760 or higher. Most lenders require a score of at least 620 to qualify for a conventional mortgage.3

If your FICO score is less than 620, you may be able to qualify for a non-conventional mortgage. However, you should expect to pay higher interest rates and fees. For example, you may be able to secure an FHA loan (one issued by a private lender but insured by the Federal Housing Administration) with a credit score as low as 580 if you can make a 3.5 percent down payment. And FHA loans are available to applicants with credit scores as low as 500 with a 10 percent down payment.4

Increase Your Credit Score

There’s no quick fix for a low credit score, but the following steps will help you increase it over time.5

  1. Make Payments on Time

At 35 percent, your payment history accounts for the largest portion of your credit score. Therefore, it’s crucial to get caught up on any late payments and make all of your future payments on time.

If you have trouble remembering to pay your bills on time, set up payment reminders through your online banking platform, a free money management tool like Mint, or an app like BillMinder. 

  1. Avoid Applying for New Credit You Don’t Need

New accounts will lower your average account age, which could negatively impact your length of credit history. Also, each time you apply for credit, it can result in a small decrease in your credit score.

The exception to this rule? If you don’t have any credit cards—or any credit accounts at all—you should open an account to establish a credit history. Just be sure to use it responsibly and pay it off in full each month.

If you need to shop for a new credit account, for example, a car loan, be sure to complete your loan applications within a short period of time. FICO attempts to distinguish between a search for a single loan and applications to open several new lines of credit by the window of time during which inquiries occur.

  1. Pay Down Credit Cards

When you pay off your credit cards and other revolving credit, you lower your amounts owed, or credit utilization ratio (ratio of account balances to credit limits). Some experts recommend starting with your highest-interest debt and paying it off first. Others suggest paying off your lowest balance first and then rolling that payment into your next-lowest balance to create momentum.

Whichever method you choose, the first step is to make a list of all of your credit card balances and then start tackling them one by one. Make the minimum payments on all of your cards except one. Pay as much as possible on that card until it’s paid in full, then cross it off your list and move on to the next card.

Debt Interest Rate Total Payoff Minimum Payment
Credit Card 1 12.5% $460 $18.40
Credit Card 2 18.9% $1,012 $40.48
Credit Card 3 3.11% $6,300 $252
  1. Avoid Closing Old Accounts

Closing an old account will not remove it from your credit report. In fact, it can hurt your score, as it can raise your credit utilization ratio—since you’ll have less available credit—and decrease your average length of credit history.

Similarly, paying off a collection account will not remove it from your report. It remains on your credit report for seven years, however, the negative impact on your score will decrease over time.

  1. Correct Errors on Your Report

Mistakes or fraudulent activity can negatively impact your credit score. That’s why it’s a good idea to check your credit report at least once per year. The Federal Trade Commission has instructions on their website for disputing errors on your report.

While it may seem like a lot of effort to raise your credit score, your hard work will pay off in the long run. Not only will it help you qualify for a mortgage, a high credit score can help you secure a lower interest rate on car loans and credit cards, as well. You may even qualify for lower rates on insurance premiums.6

STEP 2: SAVE UP FOR A DOWN PAYMENT AND CLOSING COSTS

 The next step in preparing for your home purchase is to save up for a down payment and closing costs.

Down Payment

When you purchase a home, you typically pay for a portion of it in cash (down payment) and take out a loan to cover the remaining balance (mortgage).

Many first-time buyers wonder: How much do I need to save for a down payment? The answer is … it depends.

Generally speaking, the higher your down payment, the more money you will save on interest and fees. For example, you will qualify for a lower interest rate and avoid paying for mortgage insurance if your down payment is at least 20 percent of the property’s purchase price. But what if you can’t afford to put down 20 percent?

On a conventional loan, you will be required to purchase private mortgage insurance (PMI) if your down payment is less than 20 percent. PMI is insurance that compensates your lender if you default on your loan.7

PMI will cost you between 0.3 to 1.5 percent of the overall mortgage amount each year.8 So, on a $100,000 loan, you can expect to pay between $300 and $1500 per year for PMI until your mortgage balance falls below 80 percent of the appraised value.9 For a conventional mortgage with PMI, most lenders will accept a minimum down payment of five percent of the purchase price.7

If a five-percent down payment is still too high, an FHA-insured loan may be an option for you. Because they are guaranteed by the Federal Housing Administration, FHA loans only require a 3.5 percent down payment if your credit score is 580 or higher.7

The downside of getting an FHA loan? You’ll be required to pay an upfront mortgage insurance premium (MIP) of 1.75 percent of the total loan amount, as well as an annual MIP of between 0.80 and 1.05 percent of your loan balance on a 30-year note. There are also certain limitations on the types of loans and properties that qualify.10

There are a variety of other government-sponsored programs created to assist home buyers, as well. For example, veterans and current members of the Armed Forces may qualify for a VA-backed loan requiring a $0 down payment.7 Consult a mortgage lender about what options are available to you.

TYPE MINIMUM DOWN ADDITIONAL FEES
Conventional Loan 20% Qualify for the best rates and no mortgage insurance required
Conventional Loan 5% Must purchase private mortgage insurance costing 0.3 – 1.5% of mortgage annually
FHA Loan 3.5% Upfront mortgage insurance premium of 1.75% of loan amount and annual fee of 0.8 – 1.05%

Current Homeowners

If you’re a current homeowner, you may have equity in your home that you can use toward your down payment on a new home. We can help you estimate your expected return after you sell your current home and pay back your existing mortgage. Contact us for a free evaluation!

Closing Costs

Closing costs should also be factored into your savings plan. These may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys and other fees associated with the purchase of your home. Closing costs vary but typically range between two to five percent of the purchase price.11

If you don’t have the funds to pay these outright at closing, you can often add them to your mortgage balance and pay them over time. However, this means you’ll have a higher monthly payment and pay more over the long term because you’ll pay interest on the fees.

STEP 3: ESTIMATE YOUR HOME PURCHASING POWER

Once you have the required credit score, savings for a down payment and a list of all your outstanding debt obligations via your credit report, you can assess whether you are ready and able to purchase a home.

It’s important to have a sense of how much you can reasonably afford—and how much you’ll be able to borrow—to see if homeownership is within reach.

Your debt-to-income (DTI) ratio is one of the main factors mortgage companies use to determine how much they are willing to lend you, and it can help you gauge whether or not your home purchasing goals are realistic given your current financial situation.

Your DTI ratio is essentially a comparison of your housing expenses and other debt versus your income. There are two different DTI ratios that lenders consider:

 

Front-End Ratio

Also called the housing ratio, this is the percentage of your income that would go toward housing expenses each month, including your mortgage payment, private mortgage insurance, property taxes, homeowner’s insurance and association dues.12

To calculate your front-end DTI ratio, a lender will add up your expected housing expenses and divide it by your gross monthly income (income before taxes). The maximum front-end DTI ratio for most mortgages is 28 percent. For an FHA-backed loan, this ratio must not exceed 31 percent.13

Back-End Ratio

The back-end ratio takes into account all of your monthly debt obligations: your expected housing expenses PLUS credit card bills, car payments, child support or alimony, student loans and any other debt that shows up on your credit report.12

To calculate your back-end ratio, a lender will tabulate your expected housing expenses and other monthly debt payments and divide it by your gross monthly income (income before taxes). The maximum back-end DTI ratio for most mortgages is 36 percent. For an FHA-backed loan, this ratio must not exceed 41 percent.13

 

Home Affordability Calculator

To get a sense of how much home you can afford, visit the National Association of Realtors’ free Home Affordability Calculator at https://www.realtor.com/mortgage/tools/affordability-calculator.

This handy tool will help you determine your home purchasing power depending on your location, annual income, monthly debt and down payment. It also offers a monthly mortgage breakdown that projects what you would pay each month in principal and interest, property taxes, and home insurance.

The Home Affordability Calculator defaults to a back-end DTI ratio of 36 percent. If the monthly cost estimate at that ratio is significantly higher than what you’re currently paying for housing, you need to consider whether or not you can make up the difference each month in your budget.

If not, you may want to lower your target purchase price to a more conservative DTI ratio. The tool enables you to scroll through higher and lower price points to see the impact on your monthly payments so you can identify your ideal price point.

(Note: This tool only provides an estimate of your purchasing power. You will need to secure pre-approval from a mortgage lender to know your true mortgage approval amount and monthly payment projections.)

Can I Afford to Buy My Dream Home?

Once you have a sense of your purchasing power, it’s time to find out which neighborhoods and types of homes you can afford. The best way to determine this is to contact a licensed real estate agent. We help homeowners like you every day and can send you a comprehensive list of homes within your budget that meet your specific needs.

If there are homes within your price range and target neighborhoods that meet your criteria—congratulations! It’s time to begin your home search.

f not, you may need to continue saving up for a larger down payment … or adjust your search parameters to find homes that do fit within your budget. We can help you determine the right course for you.

 START LAYING YOUR FOUNDATION TODAY

 It’s never too early to start preparing financially for a home purchase. These three steps will set you on the path toward homeownership … and a secure financial future!

And if you are ready to buy now but don’t have a perfect credit score or a big down payment, don’t get discouraged. There are resources and options available that might make it possible for you to buy a home sooner than you think. We can help.

Want to find out if you’re ready to buy a house? Give us a call! We’ll help you review your options, connect you with one of our trusted mortgage lenders, and help you determine the ideal time to begin your new home search.

The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.

Sources:

  1. Quicken Loans Blog – https://www.quickenloans.com/blog/how-does-your-credit-score-affect-your-mortgage-eligibility
  2. myFICO – https://www.myfico.com/credit-education/credit-report-credit-score-articles/
  3. Bankrate – https://www.bankrate.com/mortgages/what-is-a-good-credit-score-to-buy-a-house/
  4. Bankrate – https://www.bankrate.com/finance/mortgages/7-crucial-facts-about-fha-loans-1.aspx
  5. myFICO – https://www.myfico.com/credit-education/improve-your-credit-score/
  6. The Balance – https://www.thebalance.com/having-good-credit-score-960528
  7. Bankrate – https://www.bankrate.com/mortgages/how-much-is-a-down-payment-on-a-house/
  8. Bankrate – https://www.bankrate.com/finance/mortgages/the-basics-of-private-mortgage-insurance-pmi.aspx
  9. Bankrate – https://www.bankrate.com/finance/mortgages/removing-private-mortgage-insurance.aspx
  10. The Balance – https://www.thebalance.com/fha-home-loan-pitfalls-315673
  11. Investopedia – https://www.investopedia.com/terms/c/closingcosts.asp
  12. Bankrate – https://www.bankrate.com/finance/mortgages/why-debt-to-income-matters-in-mortgages-1.aspx
  13. The Lenders Network – https://thelendersnetwork.com/fha-debt-to-income-ratio/