Bharat SainiLast Updated on June 2, 2015 by Bharat Saini
Buying a home is not just a decision; it’s a journey. As you won’t leave for a tour without packing your bags properly, you must not embark the way towards home ownership without having proper preparation for possible twists and turns.
If you want to buy a property in the next year, start the boot camp right away. The more you learn the process the smoother your journey will be.
1. Create a feasible budget – Creating a budget is the most effective and proven method to plan and tackle your personal finance. Your plan to take on a home loan makes it even more needed to maintain a record of monthly income and expenses. A feasible and rational budget can the only thing that can let you determine how efficient you’re to handle mortgage payments ( https://www.sofi.com/home-loans/mortgage-refinance/ ) and where your finances face an obstacle. The best possible way to formulate a financial plan is to put your income into three distinctive categories – requirements, wants and savings. You must be realistic about your plan instead of being restrictive. Make sure you keep some space in your life for entertainment.
2. Keep the debts under control – You should work the hardest and the smartest in order to manage your debts in the lead-up to homeownership. Relation between outstanding debts and income plays the most important role in your capacity to land a mortgage. The type of debt-to-income ratio you need largely depends on the type of loan, the lender and lots more. There are a number of debt-busting techniques and ways out there. Some potential buyers emphasize on the high-interest debts first while others struggle to just pay a little bit more than the minimum about every month on existing credit card debts. You should also rank your debts by the amount owed and knock out the smaller debts initially. You can try snowball method or avalanche method as per your need. Nevertheless, the foremost thing is to create a plan and stick to it. You must celebrate your success and make required alterations to your financial plan in case you continually fall behind.
3. Get the credit in shape – Your credit score can make or break the mortgage opportunities right out of the track. Most mortgage lenders have minimum credit score requirements that may differ depending on the loan type and other criteria. For example, a 660 FICO score is required for traditional loans while the buyers may require more to tap into best interest rates and loan terms. Such credit benchmarks are lower for government-funded options like an FHA loan and a VA loan where lenders look for a more like a 620 FICO score. Paying down your debts may have big impact on enhancing your credit status. According to FICO, the amount you owe makes up about 30 percent of your credit score. Would-be buyers must collect their free credit reports from respective authorities and look for errors as well as bad accounts. And they should dispute any error immediately, as an erroneous report might keep them from getting credit that includes a home loan. Top realtor in Arlington says that you must monitor your credit in the meanwhile to watch for any changes required.
4. Save well for upfront fees – Apart from earnest money, down payment, inspection as well as closing costs, you should have saved up some amount to smoothen the home buying process. Traditional homebuyers need a minimum 5 percent down while some lenders go as little as only 3 percent. FHA loans need a minimum 3.5 percent down payment. Even if you use a down payment assistance program or a zero-down loan backed by USDA or VA, then also you will need some cash in hand for upfront expenses. Your lender is likely to review your finances to ensure your monthly mortgage payment won’t leave you high and dry. You could stockpile to 3 to 6 months of living costs as it could help you prove that you won’t undergo any payment shock if mortgage payment is added up to your active budget.
5. Have the mindset to make mortgage payment regularly – Being a buyer with a price range in mind, you may get a more sensible feel of how mortgage payment can hit your pocket. Be sure to use an online mortgage calculator to do a rough calculation of your monthly mortgage payment. If it’s more than your present housing cost, keep the difference money aside every month in a separate account. Make that amount off the limits and see what it is like to live sans it for a couple of months. It would help you as well as your budget prepare with a fresh mortgage payment.
According to the best real estate agent in Arlington, following above-mentioned steps won’t guarantee the best path towards buying a home; a proper and systematic preparation can ensure a smoother journey down the lane.
