This is very good advice to share with prospective home buyers.
Are You "Mortgage-Ready" To Buy A Charlotte Home?
Thinking about buying a home in the Charlotte area this spring/summer? Feel ready to buy a home? If you've answered yes to these questions, you still need to answer the question of whether you're "mortgage-ready" to buy a home.
8 Questions To Ask Yourself To See If You're "Mortgage-Ready:"
- What's my FICO credit score? If you've never checked, now's the time to do so. Your FICO credit score is a reflection of your history of paying other bills and debts on time. The higher your score, the easier it will be to qualify for a loan at the best interest rates. If you've never checked your credit score, you can obtain it from any of the three national credit bureaus: Equifax, Experian, or Transunion. And the good news is that you don't need perfect credit scores. Some 44% of recent buyers had credit scores of 650-750 and just over 9% actually had lower scores in the 600-649 range. Just keep in mind that the higher your score, the lower your rate, so working towards a higher score is a "good thing."
- Do I pay my bills on time? Not only does not paying bills on time impact your credit score, lenders will also take into consideration whether your history shows a good record of paying your bills on time. Past habits can be a predictor of future habits and lenders want to be paid on time.
- Have I saved enough money for a down payment? Unless you qualify for a VA loan or a USDA loan, you will need some money as a down payment towards your mortgage. When qualifying you for a mortgage, lenders will look at your capital and cash reserves available for a down payment and what's left over after the down payment.
- Have I saved enough money for closing costs? First-time buyers often don't know or forget that there are significant costs associated with obtaining a mortgage, separate from a down payment. A recent survey of 1,000 buyers by ClosingCorp revealed that 17% of home buyers were surprised that closing costs were required at all, while another 35% were stunned by how much higher the fees were than expected. These can run upwards of $4,000 to $5,000 and include items such as loan commitment fee, title insurance, title search, deed recordation, closing agent services, funds for escrowed insurance and taxes, inspections, surveys, appraisals, etc. Be prepared to pay 2-5% of the purchase price in closing costs.
- Do I have a fully funded emergency savings account? By definition, emergency fund savings are not meant to be applied against a down payment to purchase a home. Unexpected financial setbacks (job loss, serious illness) are a fact of life... you need to be prepared to deal with them without putting your home in jeopardy because you suddenly can't "afford" your mortgage payment.
- What's my long-term capacity to take on mortgage debt? Your current and future ability to make your mortgage payments on time is something a lender will also look at. That's one big reason they check your employment and income history and stability of employment. Lenders also look at your debt to income ratios to determine your debt capacity.
And don't forget, that when you become a homeowner, there will be costs associated with maintaining a home over and above your mortgage payment to protect the asset, which is the lender's collateral. You need to be certain that your income can "cover" it all and provide for reserves to cover major expenditures down the line. And your principle and interest are not the only costs associated with owning a home. Don’t forget about: property taxes, home insurance, HOA (homeowner’s association) fees, utility costs.
- Are my personal life goals "aligned?" If your immediate future goals include starting a family or a business, they might negatively impact how much of a mortgage payment you can afford. Be sure to account for any anticipated changes in your life that will make demands on your income and savings or strain your ability to pay a mortgage.
- Am I ready to settle down? Owning a home is not a one-year proposition. Once you've purchased a home, it can take a minimum of five years before you see a sufficient return so as not to sell it at loss as there are costs associated with selling a home, as well.
If You Are "Mortgage-Ready:"
3 Tips To Make Your Dream Of Buying A Home Come True
If you believe you're "mortgage-ready" and need an introduction to some of Charlotte area's top lenders to begin the approval process, contact Carolinas Realty Partners. We can help!
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Disclaimer: Nothing in this blog article is to be construed as legal advice, tax advice, or financial advice. For legal advice see an attorney. For tax advice or financial advice see a tax attorney, certified public accountant, or other qualified professional.