Homestead Realty Group

Buyer Info

Get Your Finances in Order: To-Do List

Develop a household budget.
Instead of creating a budget of what you’d like to spend, use receipts to create a budget that reflects your actual spending habits over the last several months. This approach will factor in unexpected expenses, such as car repairs, as well as predictable costs such as rent, utility bills, and groceries.

Reduce your debt.
Lenders generally look for a total debt load of no more than 36 percent of income. This figure includes your mortgage, which typically ranges between 25 and 28 percent of your net household income. So you need to get monthly payments on the rest of your installment debt "car loans, student loans, and revolving balances on credit cards” down to between 8 and 10 percent of your net monthly income.

Look for ways to save.
You probably know how much you spend on rent and utilities, but little expenses add up, too. Try writing down everything you spend for one month. You’ll probably spot some great ways to save, whether it’s cutting out that morning trip to Starbucks or eating dinner at home more often.

Increase your income.
Now’s the time to ask for a raise! If that’s not an option, you may want to consider taking on a second job to get your income at a level high enough to qualify for the home you want.

Save for a down payment.
Designate a certain amount of money each month to put away in your savings account. Although it’s possible to get a mortgage with only 5 percent down, or even less, you can usually get a better rate if you put down a larger percentage of the total purchase. Aim for a 20 percent down payment.

Keep your job.
While you don’t need to be in the same job forever to qualify for a home loan, having a job for less than two years may mean you have to pay a higher interest rate.

Establish a good credit history.
Get a credit card and make payments by the due date. Do the same for all your other bills, too. Pay off the entire balance promptly.

What You Can Do to Improve Your Credit

Credit scores, along with your overall income and debt, are big factors in determining whether you’ll qualify for a loan and what your loan terms will be. So, keep your credit score high by doing the following:

1. Check for and correct any errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.

2. Pay down credit card bills. If possible, pay off the entire balance every month. Transferring credit card debt from one card to another could lower your score.

3. Don’t charge your credit cards to the maximum limit.

4. Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.

5. Don’t order items for your new home on credit ”such as appliances and furniture ” until after the loan is approved. The amounts will add to your debt.

6. Don’t open new credit card accounts before applying for a mortgage. Too much available credit can lower your score.

7. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.

8. Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.

This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation. To obtain a complete copy of the publication, Knowing and Understanding Your Credit, visit www.homebuyingguide.org.

6 Creative Ways to Afford a Home

1. Investigate local, state, and national down payment assistance programs. These programs give qualified applicants loans or grants to cover all or part of your required down payment. National programs include the Nehemiah program, www.getdownpayment.com, and the American Dream Down Payment Fund from the Department of Housing and Urban Development, www.hud.gov.

2. Explore seller financing. In some cases, sellers may be willing to finance all or part of the purchase price of the home and let you repay them gradually, just as you would do with a mortgage.

3. Consider a shared-appreciation or shared-equity arrangement. Under this arrangement, your family, friends, or even a third-party may buy a portion of the home and share in any appreciation when the home is sold. The owner/occupant usually pays the mortgage, property taxes, and maintenance costs, but all the investors’ names are usually on the mortgage. Companies are available that can help you find such an investor, if your family can’t participate.

4. Ask your family for help. Perhaps a family member will loan you money for the down payment or act as a co-signer for the mortgage. Lenders often like to have a co-signer if you have little credit history.

5. Lease with the option to buy. Renting the home for a year or more will give you the chance to save more toward your down payment. And in many cases, owners will apply some of the rental amount toward the purchase price. You usually have to pay a small, nonrefundable option fee to the owner.

6. Consider a short-term second mortgage. If you can qualify for a short-term second mortgage, this would give you money to make a larger down payment. This may be possible if you’re in good financial standing, with a strong income and little other debt.

Tips for Home Buyers

*It is VERY IMPORTANT to obtain a Pre-Approval Letter from your lender before you begin your home search.

* Develop a wish list of what is important to you in your new home then prioritize the features you listed.

*Determine if you have enough saved for a down payment and closing costs. Closing costs include taxes, attorney’s fee, and transfer fees, average between 2 and 7 percent of the homes price.

* Determine which style home fits your needs. Are you looking for a starter home or downsizing? This may help in your decision to find the mortgage that will suit your particular situation.

* Be picky, but not unrealistic. You may have to compromise one thing for another.

* Insist on a home inspection and check on a possible home warranty to cover unforeseen defects within the first year of ownership.

* Once you begin your search, use the Buyer’s Checklist worksheet. You’ll probably look at many properties and this will help keep each fresh in your mind.

Additional Tips for First-Time Home Buyers

* Get your finances in order. Obtain a copy of your credit report.

* Organize all documentation the lender will need to pre-approve your loan.

* Do some research to determine if you qualify for any special mortgage or down payment programs.

* Do not let yourself be House Poorť. What this means is do not max yourself out so you can buy the most expensive house you can afford. This will leave you with no money for maintenance, decorating costs or to save for other financial goals.

* Decide when you could move. This comes into play when you are renting or leasing. When will your lease be up? Are you allowed to sublet? Talk to your landlord in advance.

Types of Mortgages and Loan Programs

Fixed-Rate Mortgage Loan

As the name suggests, a fixed-rate mortgage is a mortgage where the interest rate stays the same over the life of the loan. As a result, your monthly mortgage payment does not change. Certainty is the primary benefit of a fixed-rate mortgage loan. You always know what your interest rate will be, regardless of what the economy does. The downside is that you’ll pay a premium for this predictability, in the form of a higher interest rate. When a mortgage lender grants a fixed-rate loan for a long period of time (like 30 or 40 years), they take on a certain amount of risk. If the prime interest rate goes up during the life of your loan, you will not have to pay the difference — the lender will. This is why they charge a higher interest rate than with an adjustable-rate mortgage.

Adjustable-Rate Mortgage (ARM) Loan

These days, most adjustable-rate mortgages start off with a fixed rate for an initial period of time, usually 3, 5 or 7 years. During this introductory period, the interstate rate is fixed and will not change. After the introduction period, however, the loan converts to an adjustable-rate.

Balloon Loan

A balloon loan (also referred to as a "reset mortgage”) starts with a fixed interest rate for a certain number of years. But unlike traditional fixed-rate mortgages, the interest rates on balloon loans are nearly as low as those found on adjustable rate mortgages (ARMs). The problem with balloon loans is the term. The initial fixed-rate period of a balloon is usually 7 to 10 years. After that, you have to pay off the loan’s remaining balance in full. Obviously, that’s a large sum of money to pay at one time! Typically, people refinance their balloon loans prior to this stage, but there’s no guarantee what interest rate you’ll get when refinancing.

FHA 203K and Streamlined 203K Loans

The 203(k) streamline loan program offers borrowers the resources to rehabilitate a home that may be in need of repair, either the home that they currently live in, or that special fixer-upper opportunity, without the extra cost or details as found in the regular 203k.One single loan is used to pay for the purchase (or refinance) and the cost of renovating the home.