While you may have heard or read articles about the unraveling of the mortgage market, the dream of homeownership is still within your reach. Changes in the market mean that homebuyers need to be more prepared than ever. Even if you are contemplating buying a home a year from now, speak with a Realtor today, so that when the time comes you will be fully equipped for one of the greatest investments you will ever make.
Before you begin financing your prospective home, there are a few simple steps you should take to ensure that your real estate transaction is positive and prosperous. Before you begin you should check your credit status. As of September 2005, you have the right to receive a free credit report once a year from each of the three major credit bureaus: Equifax, Experian, and TransUnion. For completeness, it is best to review reports on each of them. Also, having overextended credit is not ideal. If you have recently financed an auto, boat or other large purchase you may not have an ideal debt to income ratio for buying a home.
Your debt to income ratio is determined by how much money you owe each month (your car payment, student leans, etc.) divided by how much you earn each month. An ideal debt to income ratio is about 30% to 40%. However, there are special programs for almost all credit circumstances. It is best to work with your local Realtor and lender to determine how much you can afford to pay for a home. Ask your lender for your credit score. This score, which is calculated based on your credit history and other factors, determines how lenders view your creditworthiness and determine the loan terms to offer. Scoring rules vary widely, but generally a score of 650 or higher means that you qualify for the most favorable loan terms.
In addition to the products your loan specialist provides, consider an FHA (Federal Housing Administration) mortgage. An FHA-insured mortgage is backed by the full faith and credit of the United States government. While FHA does not make loans, it benefits the homebuyer by providing ortgage insurance which encourages financial institutions to make affordable financing available. The FHA offers low down payment options, eligibility with less than perfect credit, a loan at a reasonable cost, and help if there is ever trouble making the mortgage payment.
Because an FHA mortgage insures the lender against loss, an FHA mortgage typically has an interest rate that is competitive with the best in your market and lower than the rates charged for subprime and other nonprime mortgages. FHA not only helps people buy a home, but helps them keep it as well. In return for protecting lenders against loss, FHA requires financial institutions to offer assistance to borrowers experiencing difficulty making mortgage payments.
Be prepared. Speak with a Realtor today, who can help you through the home buying process with knowledge and ease.
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