This article is from the pages of this week’s Real Estate Showcase. Grab a copy in this week’s editions of The Coast Star & The Ocean Star or read online.
When searching for a new home, you may come across some conflicting information, especially about home financing or mortgage loans. Consider these six money tips to help you navigate the process.
KNOW YOUR SCORE
Your credit score may impact the interest rate or the amount of money you can borrow. Once a year, you may obtain a free copy of your credit report from each of the three credit bureaus at annualcreditreport.com, the official site for free annual reports. Having great credit is certainly helpful, but not required. Homebuyer education and home loan financing programs are making it easier for homebuyers with a range of credit scores or limited credit history to obtain a loan. Find more tips and free education resources at wellsfargo.com/financial-education.
Another important factor mortgage lenders evaluate is debt-to-income ratio. A good rule of thumb is to keep your total debt level [taking into account the potential new mortgage payment] at or below 36 percent of your gross monthly income. Use an online debt-to-income calculator, like the ones found on lending websites.
SHOW THE MONEY
A recent banking survey found that more than a third of people believe you need 20 percent of the home purchase price to make a down payment. The reality is, some home financing or mortgage programs allow qualified homebuyers to put down as little as 3 percent. And for those who qualify for special mortgage programs — like military veterans or those purchasing rural properties, a down payment may not be required at all. You may also be allowed to use monetary gifts from family or friends for all or part of the down payment. In addition, certain community programs offer down payment assistance. Keep in mind, some low down payment programs may require private mortgage insurance, which adds to the monthly payment and overall loan cost. You’ll need to add that into your debt-to-income consideration.
PROVE YOUR INCOME
Home mortgage financing programs are available for a range of incomes. The key is demonstrating your ability to repay the loan. Lenders will review your income history and require current W2s, tax returns or similar documentation.
HAVE SOME SAVINGS
Have a rainy-day fund. Lenders want to see that you have savings or a cushion to handle unexpected expenses that come with homeownership, such as a leaky roof or failing appliance.
Getting pre-approved is a good way to understand what kind of home loan product or program you may qualify for. Digital services are streamlining the process considerably. Most lenders have have online mortgage application apps that make it easy for you to upload income, payroll and tax information. For a smooth home-buying experience, it’s important to know your options, use programs designed to help you, and access services that streamline decision-making.