Here at Banner Mortgage we have the distinct pleasure of helping people of all ages and income levels secure financing when buying a home. The home buying process can be both exciting and nerve-racking. Whether you’re considering buying a home for the first time or you’re looking to relocate, it’s important to begin preparing ahead of time. We encourage you to take each of the following measures to ensure you’re making a sound decision.
Improve Your Credit Score
Your credit score, at the time you purchase your home, will have far reaching implications. Your score will not only determine your eligibility for loan approval, it will determine your interest rate and monthly payments throughout the life of your home loan. This is why it’s so important to get your credit score in great shape prior to beginning the prequalification process.
If your score is below 640, it is a good idea to take measures to improve it before applying for a home loan. A score of 700 to 720 can garner a great interest rate and a score of 750 or more will enable you to secure the best rates available. The math is pretty simple; the higher your credit score, the better deal you will get on the home of your dreams! There are many measures you can take to improve your score. Perhaps the quickest way to turn your credit score around is to cross reference your history to ensure you’re not being penalized for mistakes on your credit report and/or previously settled debts. Read our blog post on How to Improve Your Credit Score for more tips.
Determine What You Can Comfortably Afford
Before you begin shopping for homes or comparing neighborhoods, it is important to gain a realistic understanding of what you can comfortably afford. Depending on the type of loan you are seeking, there will be restrictions on your debt to income ratio. However, it’s generally considered a rule of thumb that your housing expenses should not exceed 28% of your gross monthly income.
But rather than simply depending on an industry standard, we encourage you to take your potential mortgage for a test drive. Calculate your prospective mortgage, based upon current interest rates for a home in the price range you’re considering. Don’t forget to factor is property taxes, utilities and insurance. Once you have arrived at this number, begin setting aside the difference for a few months. Can you comfortably afford this bump in expenditures? If so, you’re probably shopping in the right price range.
While we are on the topic of saving, keep up the good work. In most cases, you will need to make a down payment when buying a home. Depending on the loan you are seeking, and the loan amount, you will need to come up with somewhere between 3% and 20%. There are however exceptions to those who qualify for VA loans and VA jumbo loans. Learn more about the loan options available to active duty military and veterans.
It is really important to continue adding to your savings account as you prepare to buy a home. You can typically expect to spend 3% of the overall value of your home on maintenance each year. Lenders like to work with homebuyers who have an established nest egg to help cover these costs. This is also a great way to set yourself up for homeownership success. Having the liquidity to cover the cost of unexpected repairs and regular maintenance will protect you from financial hardships down the road.
Closing costs are yet another reason to save as you consider buying a home. Your closing costs will depend upon the price of the home and the location. In some areas there are assistance programs for first time home buyers, be sure and look into this if you are planning to seek an FHA loan. It is also important to note that it is not uncommon for a seller to pay some or all of the closing costs in a buyer’s market. Be sure and discuss this with your real estate agent.
Buying a Home in Colorado
By taking these simple yet critical measures, you can rest assured that you are prepared to buy a new home. At Banner Mortgage we are honored to have the opportunity to help people, throughout the state, secure financing for home loans. If you would like to learn more about your financing options, schedule your free consultation today! Allow us to help you make the dream of homeownership a reality.