| Buying a home, no matter what market we're in, can | | | | quote only reflected principle and interest. If you add all |
| be a very stressful endeavor. Not only can searching | | | | the remaining expenses that go into the monthly |
| for the right home be a challenge, but the process of | | | | housing budget, you'll find that the actual number is a lot |
| getting approved for a home loan can be so daunting | | | | more than $1950, putting you way over your budget. |
| that it's enough to keep potential borrowers away | | | | Save some financial heartache and do your math! |
| from even thinking of buying a home. The good news | | | | 5. DON'T GET LURED INTO A LOAN JUST |
| is that with a little bit of preparation and organization, | | | | BECAUSE YOU WERE QUOTED A LOW |
| you can be well on your way to getting that loan you | | | | INTEREST RATE. |
| need to close on your new home. To increase your | | | | This is really important. The interest rate that is quoted |
| chances of success, there are 10 things you absolutely | | | | to you, especially before a loan application is actually |
| need to do before you apply for a mortgage. | | | | completed, is rarely the rate that you'll be receiving |
| 1. CHECK YOUR CREDIT AND CLEAN IT UP. | | | | when your loan closes. For instance, let's say that you |
| In today's credit crunch environment, your credit score | | | | go on the Internet and you obtain a quick quote from a |
| and what shows up in your credit report will be a | | | | potential lender simply by entering your loan amount, |
| crucial factor to a lender in determining their risk in | | | | your general credit score, and the type of financing |
| giving you a loan. The lower your credit score, the | | | | that you need. Never rely on that initial quote because |
| higher risk you are to the lender. But don't get | | | | it's not going to be the rate that you'll actually be |
| discouraged if your credit happens to be less than | | | | paying. The only way an accurate rate can be quoted |
| stellar. This is extremely important - you have the ability | | | | to you is if you complete a full loan application and the |
| to improve your credit score way before you apply | | | | lender has the chance to review the application, review |
| for a loan. Why wait until you get in front of a lender | | | | your credit score and report, locks in your rate in |
| only to get rejected because of something you could | | | | writing, and give you a commitment letter reflecting the |
| have controlled? Be proactive! | | | | terms of your loan. |
| The very first thing you need to do is get a copy of | | | | Rather than focusing on what your interest rate will be, |
| your credit report. Everyone is entitled to get a free | | | | focus on what your monthly payment will be. |
| credit report once a year so if you haven't gotten | | | | Whatever that amount is, include that amount along |
| yours for the year, go get it. Be mindful of what you | | | | with all the other expenses that make up your total |
| sign up for when you get your free copy. There are | | | | housing payment. That's the number that you should |
| services out there that will charge you a monthly | | | | look at to determine if a loan is right for you. Not the |
| membership fee unless you cancel within a certain | | | | interest rate. |
| period of time. Although the monthly monitoring of your | | | | 6. DETERMINE HOW LONG YOU PLAN TO LIVE IN |
| credit can be helpful, sometimes they sneak it in | | | | YOUR NEW HOME. |
| before you've had a chance to think about what | | | | Your answer to this question will affect what type of |
| you're actually signing up for. | | | | loan you should get and ultimately your monthly |
| Once you retrieve your credit report, you'll need to go | | | | payment. For example, if you plan to live in your new |
| through the report with a fine tooth comb. Sometimes, | | | | home for only 3 years, it would not make sense to get |
| it may be helpful to work with a credit counselor, or | | | | a 30 year fixed mortgage. A better loan for you might |
| even a credit repair agency. They can help you clean | | | | be an interest only loan for a certain number of years, |
| up your report by getting the credit agency to correct | | | | or maybe even an adjustable rate loan where the |
| any errors. The reason why it's so important to check | | | | interest rate is fixed for a certain number of years and |
| your credit report and credit score is because this | | | | then adjusts subsequently. Knowing how long you'll live |
| could mean the difference between qualifying for a | | | | in your new home will also affect whether you should |
| home or getting completely slapped in the face with | | | | consider a loan with a prepayment penalty. If you're |
| rejection. Even if you were able to qualify for a loan | | | | going to move in 3 years, make sure your loan won't |
| with a less than stellar credit, you'll be paying for it big | | | | penalize you if you sell your home within the |
| time with high interest rates (not to mention mortgaging | | | | prepayment penalty period. But if you plan on staying |
| your arm and a leg). This could cost you tens (or | | | | longer than the prepayment period, it might be worth |
| hundreds) of thousands of dollars. | | | | the savings you would get for allowing that condition |
| Go clean up your credit report. Do whatever you can | | | | on your loan. |
| to get the highest credit score possible. You need to | | | | 7. THINK ABOUT THE SIZE AND AGE OF THE |
| do this before you even look for a house because it | | | | HOME THAT YOU WANT TO BUY. |
| could take up to 90 days to get changes made to | | | | Why is this important? It's important because it will |
| your credit report. | | | | affect your monthly housing payment and overall |
| 2. MAKE SURE YOU HAVE ADEQUATE LIQUID | | | | finances. Older homes may require higher maintenance |
| FUNDS IN YOUR ACCOUNT FOR A | | | | and repair costs. Bigger homes expend more energy |
| DOWNPAYMENT AND RESERVES. | | | | and can drastically increase your utility budget. Homes |
| Most lenders will require you to verify that you have | | | | with big yards will require maintenance that you may |
| liquid cash that will satisfy the down payment as well | | | | not think about if you've always lived in a condo. You |
| as up to 6 months reserve for the monthly housing | | | | get the drift. Take these considerations into account |
| payment. They'll usually ask you for the last 2 months | | | | when you determine your total monthly housing |
| of bank statements or a verification of deposit from | | | | payment. The more these costs cut into your budget, |
| your bank. So, if you want to buy a house in August, | | | | the less financing you'll be able to afford. |
| make sure your funds are available by the end of | | | | 8. DETERMINE HOW MUCH DRIVING YOU'LL BE |
| May. If your funds happen to show up within two | | | | DOING. |
| months of your loan application, you'll have to verify | | | | Most homebuyers forget to consider this factor when |
| where it came from. Depending on where the money | | | | they finance their home. With gas prices skyrocketing |
| came from, this could be viewed negatively by the | | | | virtually on a daily basis, making this determination will |
| lender. For example, if you had to borrow the down | | | | be crucial to determining how much financing you can |
| payment, the lender will consider this as additional debt | | | | afford. The further you are away from work or from |
| that will affect your debt to income ratio. The more | | | | retail necessities like grocery stores, drug stores and |
| debt you have, the less income you have to make the | | | | schools, the more you'll have to drive. Don't forget to |
| mortgage payment. Can you see why the lender | | | | include transportation and gasoline in your budget. |
| would be weary of money suddenly showing up in | | | | 9. GET YOUR FINANCIAL DOCUMENTS READY. |
| your bank account? Get those funds in your account | | | | For most loans, you'll need some basic documents in |
| at least 3 months prior to your loan application. | | | | order to get your loan application processed. These |
| 3. DETERMINE YOUR MONTHLY BUDGET AND | | | | may include two years of federal tax returns (if self |
| HOW MUCH YOU CAN AFFORD FOR A | | | | employed), current pay stub, W-2 forms for the |
| MONTHLY HOUSING PAYMENT. | | | | previous 2 years, and asset and bank statements for |
| This is probably the second most important thing you | | | | the previous 2 months. The actual documents that you |
| need to do before you apply for a loan (the first being | | | | actually need to submit will depend on the type of loan |
| getting your credit report cleaned up). Only YOU can | | | | you choose to use to finance your home. Stated |
| determine what amount you can afford to pay on a | | | | income/stated asset loans will require much less |
| monthly basis for housing. Don't let anyone tell you that | | | | documentation than full doc loans. The sooner you can |
| you can afford a home simply because the monthly | | | | turn these in to the lender, the faster they can approve |
| mortgage is X percentage of your income. That's | | | | your loan and get you to closing. |
| ludicrous and you would be hurting yourself if you | | | | 10. FIND AN EXPERIENCED MORTGAGE |
| listened to this arbitrary nonsense. It's one of the | | | | PROFESSIONAL. |
| reasons why so many people are facing foreclosure | | | | No two borrowers are alike and your mortgage |
| and bankruptcy today. They never sat down to | | | | professional should treat you with the personal service |
| determine exactly what they can realistically afford as | | | | that you deserve. Meet your mortgage professional in |
| a monthly payment. Sit down, add up all your | | | | person or at the very least, have a good conversation |
| expenses (include fixed, variable and contingencies | | | | with them over the phone. Don't hesitate to ask |
| savings) and subtract the total from your monthly | | | | questions. Ask them about the loan process and how |
| take-home income. Whatever is left over is | | | | they keep you abreast of the progress. Ask them for |
| conceivably what you may be able to afford as your | | | | a good faith estimate of all the costs and to go over |
| total housing payment. | | | | with you the loan terms and monthly payment that you |
| 4. KNOW WHAT'S INCLUDED IN YOUR TOTAL | | | | will be paying. |
| HOUSING PAYMENT. | | | | Purchasing a home, especially if it's your first one, can |
| Your total monthly housing payment is more than just | | | | be scary, frustrating and stressful. But as long as you |
| the monthly mortgage. It should also include interest, | | | | do your homework and know what to do to prepare |
| taxes, insurance, utility costs, condo/HOA fees, | | | | yourself, you'll be on your way to making your goal of |
| maintenance/repair costs, and possibly special | | | | homeownership a wonderful reality. Best of luck to |
| assessments. So if your budget is $2000 for a | | | | you and your search! |
| monthly housing payment, that means that all of the | | | | (C) 2008 Lauren Vo |
| above mentioned expenses need to be included in this | | | | REPUBLICATION NOTE: This article may be |
| number. If you budgeted $2000 for your total monthly | | | | republished as long as all text including author credits |
| housing payment and your lender quoted you a | | | | and hyperlinks are fully intact and unedited. |
| monthly payment of $1950, it's highly likely that the | | | | |