1. IMPROVE YOUR CREDITWORTHINESS
Your
credit profile is important to a lender. While you're preparing to buy a home,
be sure you're responsibly managing your current debt. Always pay your bills on
time and chip away at your outstanding balances by paying more than the
minimum. In most cases, lenders like to see a borrower with a debt-to-income
ratio of 36% or less.
2. SAVE FOR A DOWN PAYMENT
Although
a 20% down payment
on a mortgage is ideal, it's not mandatory. Many lenders expect
buyers to put down at least 3%, aside from the Federal Housing Administration,
which requires a 3.5% down payment. However, if you're interested in building
sizable equity right away, stash a hefty amount of cash to take to the closing
table. Additionally, do your due diligence to find out about any local down
payment assistance programs.
3. SEEK PRE-APPROVAL
Before
you rush into house-hunting mode, get a mortgage pre-approval. This process is
used to help determine how much money you're qualified to borrow for a home
purchase. Once you're pre-approved, you'll have a more realistic expectation of
which for-sale houses fall within your budget. You may qualify for a loan that
is roughly 3 times your gross annual income.
4. YOU HAVE TO SHOP FOR A LENDER
The home buying
process involves more than just chasing a favorable interest rate. You have to find the best
mortgage lender for your financial situation. No two sets of
lender fees are alike, so it's important to get loan estimates from multiple
lenders before making a decision.
5. DO EXTENSIVE RESEARCH ON LOAN TYPES
A
fixed-rate mortgage isn't right for every home buyer. Neither is an
adjustable-rate mortgage. If you plan to stay put in a home to raise a family,
you might consider a 30-year loan. Conversely, if you're moving in 10 years or
less, an adjustable-rate mortgage, or ARM, could better suit you. Interest
rates on ARMs are fixed for the first several years of the loan and often start
out lower than rates on 30-year fixed loans. There are also jumbo loans, which
are typically used to purchase luxury homes.
6. YOU MAY WANT TO CONSIDER YOUR
LIFESTYLE
When you
purchase a home, you're also investing in the community that surrounds it. More
importantly, your home becomes central to every other aspect of your life. As
you shop for homes, consider your work commute, nearby schools and any
extracurricular activities in which you and your family might participate.
7. NEVER FORGET TO BUDGET
Your
monthly mortgage payment won't be the only expense you have as a homeowner.
There's also homeowners insurance, property taxes, maintenance costs and, more
than likely, homeowners association fees, which is why it's necessary to stick
to a budget. Use Bankrate's "How much
house can I afford?" calculator to determine a feasible home
loan amount.
8. GET CONSULTATION FROM A PROFESSIONAL
The home buying
process is a challenging one, which is why it helps to have the assistance of
qualified professionals. Ask questions of your lender and real estate agent,
and reach out to a housing counseling agency approved by the U.S. Department of
Housing and Urban Development for further guidance.
9. REMEMBER THE CLOSING COSTS
Not only
do you need a solid down payment for a home purchase, you'll have to pay
closing costs. The loan estimate you
receive after applying for a mortgage gives you an idea of the "cash to
close," or the money you need to complete the transaction. There are some
closing costs for which you can shop and save money, and others that are fixed.
Read Bankrate's primer on negotiating
closing costs for more tips.
10. STOCK UP YOUR SAVINGS ACCOUNT
It's
unwise to drain your savings to fund your down payment or closing costs and
leave nothing in the account to cover emergencies. A useful rule of thumb is to
stockpile 3 to 6 months' worth of living expenses. This deters you from tapping
credit cards or loans and amassing more debt.
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