- Don’t Be Late on your Credit Card Payments or Charge Excessively: You need to show your stability with managing money responsibly.
- Don’t Apply for a New Credit Card: Unless your mortgage lender has advised you that this is a good idea to build up your credit, then avoid applying for any new credit cards. Looking for new credit translates into higher risks for lenders.
- Don’t Purchase a New Car: Or any other form of transportation that you’ll have to finance. This will increase your debt-to-income ratio, which is not anything that loan officers want to see.
- Don’t Change Your Job: Do not go looking for a new job during this time. Even if you’re bored at your current job, or tempted by possible pay increases from a different career path, it’s best to keep your current employment situation going during this time. This demonstrations to lenders your stability- Which means you will be less likely to default on the loan.
- Don’t Change Banks: As with your employment, you want your banking history to show stability.
- Don’t Spend Your Money for Closing Costs: You’ll likely be responsible for part of the closing costs associated with a property transaction. Make sure you have enough to pay for your share of the obligation.
- Don’t Close Credit Card Accounts: It may seem like a good idea to close one of your lines of credit after completely paying off the balance, but this is not a good idea. Closing out the credit card wipes that information away- meaning that your loan officer will not be able to take into consideration the fact that you made payments and completely paid off that card.
- Don’t Purchase Furniture on Credit: I know it’s exciting to start picking out fresh furnishings that will go perfectly in your new home, but WAIT! Like a new car, financing large ticket-items will only increase your debt-to-income ratio, and now is not the time.
- While it may seem tempting to go out and spend a bunch of money on that new TV, a fancy new couch, or furniture, your best bet is to keep that money in hand. Avoid buying a bunch of new things until you close the deal on the house itself.
- Don’t Make Large or Cash Deposits into your Bank Account: Lenders like to see that the money for you down payment is “seasoned”, meaning it has been in your account for at least two months. It doesn’t necessarily look good when funds just appear all of a sudden.
- Don’t Co-sign a loan for Anyone: Even if you’re not the person making the payments, it will still increase your debt-to-income ratio. And as we’ve learned, that’s not what lenders like to see.
Category: Home Buying
If you are at that point in your life that you are ready to ditch the rental and purchase a house of your own, then congratulations!
Most buyers don’t have all the cash needed to buy a home upfront in full, so it’s not unusual to need a home loan. It can sometimes get a little confusing with the number of home loans available to qualify for, especially when you’re trying to decide what makes the most sense for you and your situation. To make things a little easier, I’ve listed the more common home loans below and a bit about each one:
- Conventional: This is one of the most popular home loans when it comes to buying a house. It typically offers the best interest rates compared to other home loans. The minimum down payment is about 10% with 20% being the standard. This option is best for those with good credit, and who are upgrading into their next home.
- FHA: The FHA loan offers affordable home ownership with a smaller down payment requirement than other home loans and has easier credit requirements than most. The minimum down payment is 3.5%. The FHA home loan is great for first time home buyers, however is available to anyone. It’s also accommodating to those with less than perfect credit. Since an FHA loan is easier to qualify for, the interest rates are not as attractive as the conventional loan.
- VA Loan: The VA loan is a mortgage loan issued by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. Offered to veterans exclusively, this home loan eliminates the down payment without any risk of PMI (Private Mortgage Insurance). This type of loan is designed for properties considered to be of ‘move-in ready” condition, as well as owner-occupied.
- Adjustable Rate Mortgage (ARM): The best part about the ARM home loan is that these rates typically start out lower than any of the other loans out there. However, rates will fluctuate with the market after a certain amount of time- usually either one, two, or five years- So, it’s certainly possible that your rates could go up after that agreed time. You’ll usually be looking at a standard 20% down payment with a minimum of 10%.
- USDA: The USDA home loan was created in order to help with the promotion of purchasing rural lands. It’s best for anyone who is interested in living out “in the country” or in a rural setting, however their definition of rural is probably not as extreme as you were thinking. This loan can only be used in designated areas and towns, but luckily there is no down payment required for this one either.
Are you currently renting, but dream of one day owning your own home? Then you know that one of the most crucial first steps to making this dream a reality is to start saving up money. Unfortunately, there’s a little thing called “life” that can sometimes get in the way. Bills add up, debt may be a constant shadow making it harder for you to save up, and let’s face it, sometimes a fun night out can help to empty your wallet.
With all of these to consider, on top of paying monthly rent with no equity to show for it, it is a lot easier said than done with it comes to saving up to purchase a house. The key here is to budget and find the perfect balance of paying your rent while saving up money for a down payment at the same time.
Keep in mind that saving up 20% of the purchase price is not an obligation for most financing terms. You may also qualify one of the many Down Payment Assistance programs out there. Here are some tips to help you out if you are in this predicament:
- Budget: It’s always important to budget, but it’s especially crucial if you are struggling to pay rent and bills, while trying to save at the same time. Luckily, this day and age, we are fortunate to have technology on our side. There are many cheap and/or free budgeting apps out there. Fudget, LearnVest, and Dollarbird at just a few to name.
- Find Extra Cash Online: The internet has opened up a vast array of different opportunities for you to find gigs to earn that extra cash. Maybe dog-walking? There are small online companies you can register with that will set you up with pooches and their owners. Good at arts and crafts? Sell on websites like Fiverr and Etsy. Try freelance writing for different websites that need articles and that will pay you for it. Even get paid to complete surveys online. The opportunities are endless!
- Don’t Be Late On Payments–Use Auto Pay: To make sure that you don’t end up with late fees, interest, and dings on your credit score, make sure that you make all of your payments on time. Signing up for an auto pay system can help you with this.
- Down Payment Saving: Make sure that you always stash away money each paycheck to save up specifically for your down payment. This is obvious, but one thing that most people don’t do that they SHOULD do, is treat your down payment just as you would any other bill–treat it the same as rent, electric, your phone bill, etc. Putting this money in a separate savings account can be very helpful.
- Don’t Touch Your Savings: One way to help out with saving up for that down payment is to make your savings account “hard” or inconvenient for you to access. It’s easy to do this by putting your extra money into an account that does not offer you an ATM card for it. Additionally, you should use a bank account that requires you to pull out withdrawals only in person. It’s less convenient than a normal savings account, which may encourage you not to touch it next time you see that brand-new TV or pair of jeans on sale.
- Get Out of Debt: This is one of the most crucial things you can do; get yourself out of debt. If you’ve got some debt that needs to be paid off, like a credit card, it is important to pay it all off ASAP. This will help to bring your credit score back up, which is also an impacting factor for how much your potential future down payment will be. It will also be one less thing that is sucking the money out of your bank account with all that interest tacked on.
These are just a few tips for saving up to buy a house while you are renting. Apply them to your life and you will be surprised to see how fast you can meet your goals and finally be able to purchase your dream home!
Maybe you’re ready to buy a home, or maybe you’re just curious about the process and want to start by dipping your toes in. Whether you’re merely interested, or you’re completely ready for that house you can call your own, you’re going to want to do some research on it. Unfortunately, the home buying process can be confusing for some. But it’s much easier than it looks. Don’t let this confusion drive you up the wall or intimidate you–I’m here to make it easy for you! I have listed a handful of home buying terms and tips for you below:
- Prequalification: If you’re going to need a loan, the first step in buying a home is to get prequalified. This may sound hard, but it’s actually very simple. You’ll want to start by providing your lender with your financial situation. The lender will then evaluate your finances and provide you with a general idea of the potential mortgage amount that you could qualify for.
- Remember This: Keep in mind that this is only a general idea and is not set in stone. Just because you are prequalified for it, doesn’t mean that you will 100% qualify for a loan that you were preapproved for.
2: Preapproval: Here is your next step in the home buying process. You must fill out a mortgage application. Here you will provide information to your lender. Your lender will then verify the information and approve you for a particular amount. This will provide you with a better idea of what your interest rate will be.
- What This Does: This will give you a leg up and provide you an advantage with any seller. The seller will realize that you are another step closer to getting a mortgage.
- Home Loans: There are 3 common types of home loans that you may qualify for. (Keep in mind that there are other loan options as well, but these are the most typical). They are as follows:
- Conventional: A conventional home loan is a mortgage that is not insured, or guaranteed, by the federal government. They’re popular with borrowers who have good credit, a stable job and income, and who can afford a down payment. People who are financially stable overall.
- FHA (Federal Housing Administration): An FHA loan only requires a minimum of 3.5% down. They are great for home buyers with meager savings for a down payment, and less than perfect credit.
- VA: If you’ve served in the United States military, a Veterans Affairs loan can be an excellent alternative to a traditional mortgage. If you qualify, you can score a sweet home with no money down and no mortgage insurance requirements.
- Adjustable Rate: An ARM, or an adjustable rate mortgage, can offer a home buyer a low interest rate on their home loan for a specified amount of time.
- Note: After this time is up, the interest rate can fluctuate or increase for the remaining duration of your loan. This means that your interest rate can possibly increase.
- Fixed Rate: When it comes to a fixed rate mortgage, you interest rate on the mortgage is set at a particular rate for the whole duration of your home loan.
- Example: If your mortgage is set at 30 years and fixed at 8%, then you will be paying 8% for the entire 30 years, regardless of any fluctuations in the housing market.
- Offers: When you are ready to buy a home, your real estate professional will write up an offer for you. This offer is the amount of money that you would like to purchase the property for. The seller may or may not accept your offer. Keep in mind that you don’t always have to offer the listed price.
- Counter Offer: The seller may respond with a counter offer. This is when a seller is offering different conditions to agree to. You may or not may not accept this new offer. Negotiation skills are key in this step of the process.
- Home Inspection: A home inspection is an evaluation of the present condition of the home. This is based on a visual inspection, completed by a professional. It focuses on the performance of the home, rather than cosmetic, code or design issues.
- Note: After the inspection, you will typically get a full report via email. Most inspectors get the report back to you in a couple of days.
- Appraisal: An appraisal means that a real estate appraiser will examine the house for sale. The goal of this examination is to provide the monetary value of the particular house and land at that time.
- Remember: Your lender will order the appraisal during the mortgage loan process. so that there is an objective way to assess the home’s market value and ensure that the amount of money requested by the borrower is appropriate.
- Home Warranty: Remember that not everything goes the way it’s supposed to, and as such, a home warranty has its advantages. Basic coverage for a home warranty will include anything from major appliances, to pluming, heating, electrical, etc.
- Note: This warranty is only for a specified amount of time, such as one year.
- Escrow: While buying a house, escrow is a safe holding area where important items are kept secure until the deal is closed, and the house officially changes over to the new owners. The third party is there to make sure everything during the closing runs smoothly, including the transfers of money and documents. Escrow protects each party by assuring that no funds and property change hands until all conditions in the agreement have been met.
- Remember: The escrow officer is a third party—perhaps someone from the closing company, an attorney, or a title company agent (customs vary by state),
I hope defining these terms has helped the future home buyers out there. It can be a messy process trying to buy a house that you’ve always dreamed of. But taking a few moments out of your day to do research can help you loads more when it comes to buying a home.