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Right on the Money | Getting Your Finances in Order to Buy a Home
Getting Your Finances in Order to Buy a Home
Preparing to purchase your first home starts long before you choose a REALTOR® or fill out a loan application form. You've probably started the process without even knowing it by graduating from school, accepting your first job, and financing a car.
There's something you should know before we get started: lenders typically base their loan approval on two things:
- a buyer's ability to make an acceptable down payment and
- the buyer's credit profile. A good credit profile shows the person's ability to make timely, ongoing monthly payment.
Before you begin the loan application process, it's important to get your finances in order to buy your first home.
Save for a Down Payment
Saving for a down payment is hard, but it is worth the effort. A more substantial down payment will give you better interest rates and more options. The amount of your down payment increases or decreases the risk the lender takes when providing the financing for your house. The larger the down payment, the less chance of losing part of their investment.A good rule of thumb is to save at least 20 percent of the purchase price of a home. By doing this, you'll receive better mortgage and interest rate options--and avoid the extra cost of private mortgage insurance (PMI).
Following a monthly budget will allow you to save enough money for your down payment. Designate a savings account fund earmarked for your down payment. Once you buy your home that same money-saving discipline will help you save enough money to make your monthly mortgage payments.
Your Credit Score
Lenders use your credit score to determine how likely you are to pay your bills in a timely manner. Typically, the higher your credit score, the better interest rate you may be able to obtain. A person's credit score is based on information about your credit history taking into consideration factors like the amount and type of debt and late payments.
You can order your credit report from Equifax, Experian, and TransUnion. They will all be slightly different, so look at each report. You can order free copies once a year from www.annualcreditreport.com. Look for any inaccuracies and report them to the credit reporting agency. Fixing mistakes takes time, so start this process as early as you can.
Getting your finances in order prepares you to impress mortgage loan reviewers and qualify for the financing you need to buy your first home. Contact Wagner Realty to get your home search started.
