Preparing to Buy

You’re excited about the prospect of buying a new home and you want to get started. But before you start seriously considering properties, take these steps to be prepared:

Check Your Credit Rating

Your credit score will be an important factor in the interest rate you’ll be charged for your mortgage. Check your credit rating with an experienced lending institution to help you understand what you can afford. The lender will likely research your credit ratings from the three credit reporting agencies Equifax, Experian and Trans Union. We will be happy to recommend experienced, knowledgeable lenders to you.

Budget Wisely

Take a close look at your finances and ask yourself how much house you can afford. According to experts, your mortgage payments should not be more than 28% of your monthly income. When planning for your new home purchase, remember that at closing, in addition to your down payment, you will need to pay closing costs that typically range from about two to five percent of the purchase price. These costs generally include mortgage insurance, homeowner’s insurance, appraisal fees, and property taxes, and may include other costs and fees, as well.

Separate Your Wants and Needs

Define your must-have as well as your nice-to-have-but-not-necessary home features. Likewise, plan for the future. Picture what your life will probably be like five years from now and take expected changes into consideration.

Decide on Your Down Payment

How much money you decide to put down as a down payment, and where it came from, can be instrumental in how much a bank or mortgage lender will be willing to lend you and how large your mortgage payments will be. Your down payment can come from your savings, proceeds from the sale of your previous house, or gifts or grants from family members or others. There are restrictions, though, on what portion of your down payment can come from a gift. Your lender will help you understand the requirements.

Most mortgage lenders require a down payment of at least 3 percent. Depending on your credit history, the type of home you’re interested in and your reason for buying, and whether the mortgage is insured by the Federal Housing Administration (FHA), the minimum down payment could be 3.5 percent, 5 percent, 10 percent, 20 percent or more.

While saving up for a 20 percent down payment may not be easy, it can have substantial financial benefits. For example, with a 20 percent down payment, private mortgage insurance (PMI) may not be required, and your lender may charge lower closing costs and fees than for a smaller down payment.