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IN THE NEWS

Tulsa ranked No. 5 on list of best places to live

 

Mortgage rates low, time is right for first-time home buyers

by: PHIL MULKINS World Staff Writer
Wednesday, January 05, 2011
1/5/2011 4:44:22 AM

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.