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Preparing Yourself to Purchase a Home
If The American Dream of owning a home is on your mind, then its time to start training yourself to get approved for a mortgage!
The first thing you want to do is start monitoring your credit score. You need a FICO score of at least 630 to qualify for a home loan. Qualifying for a home loan is a lot more involved then it was before the housing crash in 2007. Lenders have strict guidelines to adhere to in order to approve a loan and your FICO (credit score) plays a big role – in addition to your income to debt ratios.
Here are 7 ways to improve you credit score:
- Watch those credit card balances. The optimal use percentage of a credit line is 30% or less of the available balance,
- Eliminate credit card balances. If you can’t pay off small balances, try consolidating them with a small personal loan. Avoid polluting your report with a lot of balances.
- Leave old debt on your report. A lot of people (including myself before I bought my first home!) think that old debt is bad debt – wrong! Often when people pay off their car, student loans or furniture store account they want to remove that account right away because its no longer needed. However, so long as the account was paid timely, old credit is good history and shows the credit reporting agencies a solid repayment record.
- Use your calendar. If you are rate shopping for a car, student loan or home do it within a short time period. Every time an inquiry is run on your credit your score goes down a few points. However, if multiple inquiries are done for the same purpose within 45 days, many reporting agencies consider it one inquiry.
- Pay bills on time. Simple as it sounds – always pay your bills on time. If you have a hard time remembering due dates, consider setting up auto payment through your bank to eliminate the risk of paying late.
- Don’t hint at risk. You want credit reports to see you in a good light. Stay away from cash advance options or making purchases places that might indicate financial struggles i.e. pawnshops, divorce attorneys etc. Also avoid missing payments (a huge red flag to creditors) or paying significantly more or less on account – these actions could raise suspicion.
- Don’t obsess. A few months prior to wanting to purchase a home you should get laser-focused on your credit score. Until then, keep in mind different places use different credit reporting bureaus (Experian, Equifax and TransUnion) so your score may vary. Your entitled to a free credit report every 12 months through www.annualcreditreport.com. If you send for one every four months you can essential monitor your credit for free.
Next, you want to decide exactly what loan type is best for you because it will help determine the amount of money you will need to have to close on a home. Many home buyers strive to be able to put 20% down to avoid paying Private Mortgage Insurance (PMI) on home. However, if you don’t have funds available to do that, don’t let it hold you back. Interest rates are at an all time low so buying now is smart.
The most common loan types are:
- FHA Mortgage – Insured by the Federal Government, these are usually 15 or 30 year fixed rate mortgages that have lower down payment requirements and do not rely as much on your FICO scores as a Fixed Rate Mortgage.
- Conventional Fixed Rate Mortgage – can be a 10, 15, 20, 25 or 30 year term and has a fixed rate for the life of the loan.
- VA Loans – These loans are available to those who have served in our nation’s armed forces and, in certain cases, to spouses of deceased veterans and require no down payment.
- Rural Housing (USDA) – 100% financing for homes located in designated rural areas of Monroe and surrounding counties.
- 203K – This loan can be used by those who are purchasing a “less than perfect”, owner occupied property. The final mortgage amount will include funds that the homeowner will use to repair the home.
A local lender can help you determine which loan is right for you. My preferred lender, Steve D’Amico of Premium Mortgage (585.746.3471), provided a lot of information for this blog (thank you Steve!) and is just a phone call away.
Finally, its time to start the house hunt! I will create a custom home search for you so you get all of the new listings that hit the market that meet your criteria for a new home. You can also create your own search on my website www.rochesterrealestateexpert.com. As soon as a home listing catches your eye, simply call or text me and we will schedule a showing! A common misconception is that a Realtor only shows homes listed by their brokerage (in my case Howard Hanna). That is not true – I can show you any listing whether it be Re-Max, Empire Realty, Keller Williams – any of them.
Let’s get started!