Advice offered by Marc Hebert, president of The Harbor Group Inc., a certified financial planner. If you have any questions about finance or if you’d like to suggest a future topic, email webstaff@wmur.com.
Maybe you have dreamed about buying a home and have decided you are finally ready to make the large financial commitment it takes to be a homeowner. Part of the commitment you make could be in the form of a mortgage loan. To achieve the best possible result when obtaining a loan, here are a few suggestions to follow:
Review your credit report
As a good credit report is the key to a lender’s underwriting process, make sure to review yours. Is it in good shape? Make sure the report is accurate and any errors are corrected. If need be, take steps to improve your credit, the most important is paying your monthly bills on time.
Know your debt-to-income ratio
Many lenders require borrowers to have a certain debt-to-income ratio. This refers to the percentage of monthly gross income you have to spend on debt payments. The percent usually given is 36% to 43%. Debt payments can include things like student loans, credit cards, and car payments. If your ratio is too high, try making a plan to reduce your debt. Perhaps you can cut back on discretionary spending and apply the money to your loan payments. Another alternative is to increase your income. A second job might be needed for awhile.
Decide on a down payment
It might be possible for you to obtain a mortgage with little down , for example, the Federal Housing Administration will allow a down payment of as little as 3.5 percent of the home’s purchase price. Keep in mind that making a larger a down payment may translate into a more attractive mortgage loan. If you are making a minimal down payment, you might want to consider holding off purchasing a home until you are able to increase the down payment.
Seek pre-approval
It is a good idea to pre-approve your loan when you are close to starting the buying process. Meet with a mortgage loan officer (or several), and be prepared to have crucial documents available, your tax return for example. Pre-approval will give you an indication of how much home you can buy. Sellers will know you are steps closer to the ability to make an actual purchase, which is a negotiating plus for you.
Shop lenders
Not all lenders are created equal, so shop, compare, and negotiate with one that fits your situation. Do your homework.
Research loan types
Just as all lenders aren’t created equal, neither are loans. If you are planning to stay in the home for a long time period, then a fixed rate mortgage might suit your needs. However, if you are planning to reside in the home for a short time frame, an adjustable rate mortgage might be the better option. Understand the loan offers before choosing.
Remember it isn’t only the mortgage
While the monthly mortgage payment is probably your main concern, there are other things to consider. You will need to have money to pay the closing costs of the purchase. These include things like appraisals, title searches, and surveys. Along with the monthly mortgage payment, there are going to be costs to maintain the home. You will need to consider homeowner’s insurance and real estate taxes at a minimum. An emergency reserve is a must for those unexpected repairs.
Buying a home is an exciting experience and with a little planning, you can be prepared for the financial aspects as well.
Money Matters: Financial tips for obtaining a mortgage loan - WMUR Manchester
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