The Kestner Team

7 Tips for Consumers Preparing to Purchase a Home

June is National Homeownership Month and we urge consumers to get informed as they prepare to buy a home. Today, there are a growing number of obstacles for home buyers, including a higher credit score standard and more restrictions on credit. Despite current challenges in the secondary mortgage market, home loans are available to credit-worthy buyers.

Regardless of your purchase power, it is extremely important, especially in today’s market, to have a thorough understanding of your mortgage options.  Here are seven tips to help you do exactly that:

1. Learn about first-time home buyer programs.  Visit with your local banker to find out about programs available to you, such as the new federal $8,000 first-time home buyer credit for 2009 home purchases.  If you don’t have a mortgage broker, we’re happy to provide you with names of several excellent local brokers.   IT’S NOT PAINFUL – they do NOT bite.

2. Get pre-approved. Know the difference between “pre-qualified” and “pre-approved.” Getting pre-qualified is a casual process where the lender tells you how much you should be able to borrow based on how much money you make, how much debt you have and how much you have to put down on a house.   Keep in mind, the lender may state that you are qualified for a mortgage payment of $1,500 a month.   However, you may not be comfortable with that amount.   KNOW YOUR BUDGET and how much you can comfortably afford.   Keeping mortgage payments under 30 percent of your monthly income is a good rule of thumb.  Pre-approval occurs only after you actually apply for the loan and the lender gives you in writing the amount you can borrow. A buyer who is pre-approved is more attractive to sellers and their agents than one who is only pre-qualified. Once you find a mortgage that is best for you, get pre-approved before you start making offers on a home.

3. Be honest with the lender and yourself. You don’t want to borrow more than you can afford. Your bank can provide a calculator to determine if you can afford to borrow and if so, how much. The American Bankers Association has several home financing calculators available at www.aba.com/aba/static/calculators.htm.

4. Look at the basics of the loan. Don’t get distracted by all the bells and whistles. Choose the type of loan that makes the most sense for you.

5. Know your credit situation. Obtain a copy of your credit report and FICO score at least six months before you apply for a mortgage. This should give you enough time to challenge and remove any errors on your credit report and take care of anything that’s hurting your credit score. A high credit score indicates strong creditworthiness, and that qualifies you for better interest rates on a mortgage. Maxing out on your credit lines and paying bills late will lower your credit score.  To obtain a free copy of your credit report, visit www.annualcreditreport.com.    DO NOT ASSUME that you can’t buy a home if you don’t have awesome credit, there ARE LOANS AVAILABLE TO YOU. 

6. Consider all the costs. A lender will review costs like fees, closing costs, points, homeowner insurance, and taxes. But consumers should also consider repairs and maintenance costs. On the other hand, owning a home brings big tax savings at the end of the year.   Also, find out if there is a Home Owners Association (HOA) and the amount of the monthly fee.  If you’re purchasing a condo/townhouse, find out what expenses the fee covers i.e. water, insurance on the exterior, etc. 

7. Organize your finances before you go to the bank. While each bank may require different documentation, at a minimum you will need:

-          Pay stubs.
- Tax returns.
- Financial statements (one that is less than 60 days old).
- Copies of additional monthly payments such as car loans, credit cards, student loans, etc.
- Any additional information (such as proof of additional income) that you think will help your banker to positively evaluate your credit request.

8.  How many years will I stay here?
Generally, the longer you plan to live someplace, the more it makes sense to buy. You’ll build equity in your house and its value will likely increase over the years.

This article is an exerpt from an article produced by RISMedia.