down payment

The days of easy to get mortgages have been over for awhile. That’s a good thing, but it can make buying a home a bit more difficult. There are some things you can do before you buy to get the best rate and mortgage for your new home.

Your credit score

These days your credit score is more important than most everything else in determining if you get a mortgage and what your interest rate will be. Take a few minutes and get your score. You can pull it once a year free from the big three credit rating companies: Equifax, Experian, and TransUnion. You don’t need to use one of those “free credit score” companies. But do get all three and know your numbers and average.

Don’t assume. A low credit score and credit fraud can stop a mortgage application dead in its tracks. Most mortgagors require a minimum credit score of 680 for conventional mortgages and 620 for FHA mortgages. If there are problems on your report, such as erroneous information fix it now before you apply.

Save, save, save

These days getting a mortgage with no down payment or a very low down payment is nearly impossible. How much depends on many things, but know that you’ll need at least a 3.5% down payment. More is better. You’ll also need money for closing costs and living expenses after the purchase.

Don’t change jobs

Don’t change employment. If you need to change jobs, wait until after you close on the home. Any changes in your employment or income can delay the mortgage process or stop it all together. If you change jobs your lender will need to re-evaluate if you still qualify for the mortgage or not.

Pay down your debt

If you have debt, pay it down and don’t take out new loans. High income to debt ratios can put the kibosh on your mortgage hopes. Lower income to debt ratios can get you a better interest rate on your mortgage. Also don’t go on a buying spree for new things for the house until after you close. New loans will show up when the lender does that last minute credit check. That includes co-signing loans for others.

First time home buyer? There is so much to do. So much to know and remember. Here are some quick tips to break it down into smaller bites.

Credit score repair

Let’s start with what you need to do prior to even stepping foot into a home for sale. What is your credit score? Do you know that even if you can get financing with a less than stellar credit score, your interest rate will be higher?

So take some time and find out your score, then see what needs to be worked on and fix it. That may take time so start now. If you don’t want to use one of the “free” sites, go to the big three, Equifax, Experian, and TransUnion, and request a copy of your credit report. You are entitled to one per year for free.

Down payment: How much?

Another prior to looking, save money for your down payment. How much will you need? Depends on the amount of money you are looking to spend on a home. The best bet is at least 20% of the amount of the home. So this goes hand in hand with another tip: figuring out what you can afford.

The general guideline that experts advise is that your mortgage shouldn’t be more than 1/3 of your pre-tax income. Keep in mind that your total mortgage payment will include your real estate taxes and homeowner’s insurance. The mortgage company pays these bills from an escrow fund they hold for you. The 1/12th of the tax and insurance bill is collected each month and put in the escrow.

If you have hired a real estate agent that is trying to talk you into more home than you can realistically afford, find another agent. An ethical, responsible buyers agent should never push you into buying a house that pushes your budget to its limits.

Ok, next is what you want in your house

This becomes the battle of the “must haves” versus the “would like to haves”. Working electric, plumbing, solid home with no leaks, cracks or other structural problems and the specific number of bedrooms and at least one bathroom are must haves.

Granite and marble countertops in the kitchen and baths, a man cave, pool or bath for each bedroom are would like to haves. If you can get them in your price range, great, but don’t go over budget just to have extras.

Bidding on a house

Found your house? Well the next tip is do not, under any circumstances, make a bid so low the seller won’t even entertain it. Seriously, don’t insult the seller. Pay attention to what your Realtor is telling you about your best bid. No, it doesn’t matter that your Dad or brother-in-law said to low ball the offer. They may have your best interests at heart, but in this instance they will not be helpful.

If your Realtor says offer full asking, do it. If they think you can make an under asking bid, do it. You hired your Realtor for their help and expertise. Use it.

Do not start buying things!

Lastly, now that the seller accepted your offer, it’s not time to go furniture shopping, switch jobs or buy a car. If you do anything to affect your credit, you may not get your mortgage. WAIT! Go and settle on the home, sign on all the lines, dot all the i’s and cross all the t’s and get the keys. Wait a few days to make sure all the paperwork has been recorded at the local land records office and that the mortgage company has all your paperwork. Now you can go buy furniture and use your credit.

Buying your first home is exciting and a bit terrifying. Follow the tips above, listen to your Realtor and it will be smooth sailing!