Although
mortgage rates have been ticking higher from historic lows in November,
30-year, fixed-rate home loans generally remain below 5 percent. This means
now is still the time to get into that first house, but buyers need all their
ducks in a row before venturing out onto that big pond, says the website
MonitorBankRates.com.
Credit score: It was easy to get into a home before the housing crash,
but now it's a different reality on mortgage credit requirements. One of the
old rules still applies: The higher the credit score, the lower a buyer's down
payment and monthly payments will be. FICO scores below 680 mean would-be
buyers must either pay sizable fees or a higher down payment to be able to
qualify.
Although there are many qualified borrowers in the 580 range, today's market
is looking for 640 to 660 minimum. Scores of 700 to 720 will get good deals,
and 750 and above will garner the best rates of the market. Buyers can improve
their chances by pulling their credit reports - see
tulsaworld.com/ACR
- to ensure they're not being penalized for old, paid or settled debts. They
should stop applying for new credit one year before applying.
How much house: Look for a home that's financially comfortable.
Determine how much home you can afford with BankRate.com's mortgage calculator
- see
tulsaworld.com/BANKmortgagecalculator - by typing in wages, debts,
down payment, loan term (years), interest rate, insurance (cost per year),
real estate taxes, car payment, credit cards monthly payment, etc.
FHA financing: About 20 percent of buyers will get FHA-insured loans,
and for FHA approval home buyers' house payments can't exceed 31 percent of
their monthly incomes.
FHA will let buyers go higher in some cases, but for conventional loans the
safe formula is home expenses cannot exceed 28 percent of gross monthly
income.
Improve chances: Shoppers should try on these financial obligations
before signing mortgage papers by calculating prices for homes in their price
ranges along with increased expenses (ad valorem taxes, insurance and
utilities). They bank the difference between this cost and what they're paying
now. This builds a nice nest egg and shows them what living without "the
difference" will be like.
Mortgage preapproval: Before real home shopping begins, buyers should
get financing in place through the "preapproval process." This is much more
extensive than it was just a few years ago. Documentation of income and assets
is essential to approval. Buyers should get financing in place before even
walking into the first house.
Buy a house you like: When buying today for the family that will live
in the house many years, pick a home that will make them happy for at least
the next decade. Gone are the days of house hopping through quick sales and
"house flipping." Depending on the down payment amount and the cost of selling
and relocating, short-term ownership is an expensive proposition. Love the
house you'd like to buy.
Saving up can cover extra costs
Improve your chances of getting into home ownership by setting money aside
every month. An estimate of your liquid capital needs is that you'll spend 2.5
percent to 3 percent of your home's value annually on upkeep, repairs and
maintenance. When buying a $250,000 home, begin banking $520 to $625 per
month.
Down payment: Depending on credit score and financing, would-be
homeowners must put down 3.5 percent to 20 percent of the loan amount as a
down payment. When using FHA financing, a FICO score of 500 or higher is a
must. For those in the 500 to 579 range, if they are able to find a willing
lender, buyers must put 10 percent down instead of just 3.5 percent. An
exception is Veterans Affairs loans requiring no down payment.
Closing costs: Another cash expense is closing costs. Whatever the loan
source, home buyers also must pay closing costs running $2,300 to $4,000.
Buyers can get the average closing costs in their states on Bankrate.com's
closing costs map.
Build savings account: This is over and above your money for the down
payment and closing. Your lender wants to see that you're not living paycheck
to paycheck. If you have three to five months' worth of mortgage payments set
aside, that makes you a much better loan candidate. And some lenders and
backers, like the FHA, will give you a little more latitude on other factors
if they see that you save a cash cushion.
Such money will also help with maintenance and repair issues that come with
home ownership. Although repairs are sporadic, big items such as a new $6,000
roof, a new $1,000 water heater or other big-ticket items can hit suddenly and
hard.
