Monday, January 12, 2015

Stop Renting, Buy. New Year's Resolution for many in 2015!

One of the top resolutions made this year is to stop throwing money away on rent and finally BUY your own place.  This statement is true for millions of Americans as we move into 2015 in earnest!  One of the most important things you can do to make this resolution become a reality is to have game plan!  What should you do FIRST?  

The most important thing you can do is STRENGTHEN YOUR CREDIT SCORE!!!!  Don't wait until a lender is pulling your credit.  Don't wait until you've found the house of your dreams.  You need to begin working on this NOW.  The higher your credit score, the better financing options become.

It is true that many qualified borrowers can be approved for home loans with scores between 580-640.  However, the market today is looking for borrowers with 640+ as a minimum.  Further, scores of 700+ usually will get you a good deal and 750 and above will garner you the best rates and pricing on the market.

Follow the steps below and give yourself the best chance of obtaining your dream!

Step ONE: Pull your credit reports and ensure you're not being unfairly penalized for old, paid or settled debts.  Do this now!  Don't wait until the lender pulls your credit to find out what is hurting your scores!  Stop applying for new credit and do everything possible to REDUCE your debt prior to application.  Ideally, when the lender pulls your credit report, it is the only time it has been pulled in the past 12 months (you personally obtaining your credit report does not count as a pull or inquiry).

Step TWO: What can I afford?  You will not have a problem getting approved for a home when the payment you are attempting to qualify does not exceed 30% of your GROSS monthly income.   If you're salaried at $50K annually ($4166/monthly) - 30% of your gross income is $1250.  Go use a mortgage calculator with current mortgage rates to determine what price range should fit inside your budget.  Be aware if you carry alot of other debt, you may have to revise your number later.

Step THREE: Save, Save, Save With the exception of a VA loan or a few other programs that are in existence, you will need to have anywhere from 3% to 20% to be able to put as a down payment for you home.  Be aware that this is your down payment and will have additional costs/fees to be paid out of pocket.  Not only do you need to have this money for these purposes, but it is also a very good thing to be in the habit of putting money away.  Owning a home is fantastic...and expensive.  Expect to spend 3-5% of your home's value on upkeep annually.  If you're living paycheck to paycheck, you need to create habits that begin to build a rescue fund for when you suddenly have to replace that water heater .

Step FOUR: Pre-Appoval The #1 thing you can do when seriously considering home ownership is to have EVERYTHING in order prior to contacting the lender.  Do everything you can do pay down your debt, clean up your credit report, and have your down-payment/cash saved prior to talking to the lender.  Your process of home-ownership doesn't begin when getting your pre-approval.  It begins months and even years before.

Step FIVE - LOVE the House you Buy Don't skip any steps!  Don't put the cart before the horse.  Whatever you do, do NOT fall in love with a house you cannot afford.  Now is the time after the first 4 steps to find out what you love and purchase the home that MOST fits your loves.  This home is to be something that will make you happy for years to come!  Be sure to LOVE it when you buy it!

Keep in mind the preappoval to closing process is MUCH MORE EXTENSIVE than it was a few years ago.  Even if this is your 5th home purchase and you've never had to provide that before; understand that the quicker your provide what is requested by the lender, the quicker and easier the process becomes for everyone involved!  Happy 2015 and Happy Home Buying!!

David Villmow is the Director of Credit Management Solutions specializing in credit consulting, restoration, and management for the mortgage industry. Check Credit Management Solutions out online: 

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