April 25, 2018
By Mary Beth Eastman

Ready to Buy a House? Do These Three Things First

Simple. Thrifty. Living.

Spring brings warm breezes, green grass and, for some, the desire for a new home. You may feel ready to buy a new home, but are you really? Before you make an offer, check that your finances are in shape.

Your credit score determines whether you will get financed for a mortgage, and unless you have significant funds at hand, you will need that loan. Although banks may differ slightly on their required credit score, most demand good credit, often somewhere in the 680 range. For loans backed by Fannie Mae or Freddie Mac, the minimum score is 620, and the lowest score needed for an FHA loan is 580.

If your credit score isn’t where it should be, work on raising it by paying down your debt and avoiding late payments on any bill. Resist the urge to make any other large purchases, and do not apply for additional credit, a process that might ding your score. You may have to postpone your home purchase, but a year of dedication can significantly improve your credit.

Wonder how much you need for a down payment? It depends on a number of factors. A traditional down payment is 20 percent or above. Your conventional lender may let you pay less, such as 15 percent, 10 percent or even 5 percent, but you will probably have to pay for mortgage insurance to protect the lender if you default. Mortgage insurance is a significant expense, so consider if waiting might be a better option. FHA loans only require a minimum 3.5 percent down payment and some special programs require 3 percent. Check to see if you qualify for any of these loans.

Remember, a larger down payment will give you lower monthly payments and cost you less in the long term. You may consider refinancing your student loans to free up cash for your down payment.

When you find the house you want, you still need more information, such as its value. An appraisal of the home takes into account comparable sales or comps. These are the prices of at least three recent sales of similar homes in the area, and they help determine what the sale price of your desired property should be. Finding comps on your own is possible, but you will need access to an MLS (Multiple Listing Service) that gives this information. If a similar home down the street sold for much less than the price of your choice, continue your property search.

Also be sure of how much home you can afford before you start looking, not after you’ve found your dream home.

Buying a new house will be much easier if you do your homework. Make certain that your personal finances are in order and then find a home that is worth your hard-earned money.

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