If you are considering buying a home (or will in the near future), here is a list you can use- the top 5 home finance tips. Our experts have a handy primer on the tangible steps any prospective homeowner should take before falling in love with that dream house with the wraparound porch or dormer windows.
1) How much will you owe? First, the serious borrower has to fully understand the costs involved in mortgage payment. That means knowing how much your principal (the original amount borrowed), interest (the cost of borrowing), property taxes, and insurance are. Depending on where you buy, homeowners association dues may be included as well. Make sure you include that when calculating how much you can borrow. Use an amortization calculator to help determine how much you'll owe each month.
2) What's the score? Next, if you haven't already, make it a habit to check and monitor your credit score. In today's mortgage market, your credit score is typically the most critical element in determining your creditworthiness. The credit score tells lenders not only how often you pay your bills on time, but how you use the credit available to you. With that in mind, be careful when opening new lines of credit, as it will likely drop your score by a few points; you'll be able to bring the score back up after a few months of on-time payments, so just make sure you don't open a new card or account the day before you apply for a mortgage. You're entitled to a free report on your credit each year, and a host of companies provide monitoring services.
3) Which product is right for you? Your mortgage should match your life circumstances and your future plans. For example, if you plan to stay in the same home for 5 years or longer, and expect to have a relatively stable income, a 30-year fixed-rate mortgage is probably a good fit. On the other hand, if your income is expected to rise in future years, or you're likely to move in the next few years, an adjustable-rate mortgage may be worth a look, giving you financial flexibility in the near-term. Bottom line: there are many mortgage products out there, so do your shopping and find out what works best for you!
4) Get pre-approved! If you are truly serious about buying a home, getting pre-approved by a lender will give you a leg up on the competition, as you'll show the seller that you're a serious buyer. Additionally, you'll have a much clearer idea of how much you can borrow, so you don't waste time shopping for homes outside your price range.
5) Get prepared! Finally, talk to your lender in advance and find out what documentation is required. If you haven't applied for a mortgage in the past few years, you might be surprised at how much paperwork you will have to submit. And government regulators have a habit of making the process even more complicated, so be ready to provide everything from personal info to tax documents to bank statements to income filings, and much, much more. Many lenders will be able to provide you with a handy checklist to help you prepare your application.