For most people, buying a house is the single largest financial transaction of their lives. Purchasing a new home at the right price and with favorable terms and interest rate can put you and your family on the road to a good financial future. Patience and preparation are the keys that will unlock the door of your dream home.
Monitor Your Credit
Mortgage lenders like to see credit scores of at least 700. You'll pay higher interest with a lower score, and might be denied a loan altogether. Check your credit regularly and make sure there are no errors that reduce your score. Also, it can hurt your credit when you apply for mortgage financing from multiple lenders. Only apply when you're ready to move forward with the home purchase.
Plan on saving about 10 percent of the purchase price for a down payment. It's wise to have more savings to cover closing costs, and an emergency reserve equal to several months’ expenses. The bottom line is that the more cash you have saved up, the more likely it is lenders will offer good rates.
Understanding the mortgage process is a vital part of preparing to buy a home. You must decide between a fixed rate and an adjustable rate mortgage. Fixed rate financing is the most expensive. However, an ARM can end up costing more if interest rates rise. Make sure you know how closing costs and other fees will affect the financing of your home.
Ask the Experts and Compare
When you shop for mortgage interest rates, consult experts. Start with the loan officer at your bank and your real estate agent. Comparison shop by contacting loan officers at other banks, credit unions and other mortgage lenders.
The FHA and VA
The FHA and VA loans are a good place to start. With an FHA loan, you may need no more than a 3.5 percent down and credit requirements are less stringent than for regular mortgages. You will have to purchase mortgage insurance. Veterans and military service members qualify for VA loans.
In some cases, there is not a down payment. Check out Low VA Rates for more information. The financial advantages of either program are considerable, so you may want to check them first.
There's a lot of preparation before you will be financially prepared to purchase a home. The work and time are worth it because it's likely to save you many thousands of dollars.