Ready to buy a house?
You’ve got that great feeling inside that says you’re ready to buy a house. But that feeling quickly fades once you start a little bit of research, and can even turn to anxiety and fear!
Don’t worry, though, finding a house is a daunting process and with a wide range of factors, it can feel like there’s no good place to start. So, the best place to start is with yourself. Follow this quick, simple checklist to calm your fears and get you a step closer to making your first house a home!
Know The Score
The first and best thing you can do is also free: get a credit report. If you’ve ever had a really good one or a really bad one, you probably keep an eye on it all the time. Your credit score affects almost all of your purchases, especially if they’re large. By knowing what the perception is of your credit, you can know how much you can afford and how to go about looking for the resources you need. You don’t want to be surprised with anything when buying a house, and this step is a great example. With the right knowledge and planning, you could end up saving yourself thousands of dollars if you spend the time and effort to improve your credit score. Now that the government entitles you to a free report once a year, you can be in control of an important aspect of getting a mortgage.
You can get help from banks and lenders by a pre-qualifying process that means exactly what it sounds. They will analyze your financial situation by looking at income, assets, monthly expenses, and debts to get a better picture of what you can afford. It’s an informal process that is a great step toward understanding your personal finances.
After that, you can be pre-approved for a mortgage as well. It’s more formal as a lender is committed to creating a loan for you. It makes you a strong buyer when you’re looking at homes, and is the next step to making sure you have your finances in order.
Fixed vs Adjustable? No easy answer
This question is the biggest thing responsible for the mortgage crunch. The question about fixed vs. adjustable-rate mortgages has no simple answer. If someone gives you one, they probably have a reason for doing so, and it might not be with your best interests in mind. There is one quick way to look at the question: will you be staying in the house for longer than the adjustable-rate period? If the answer is no, you might be able to handle the changes in interest rate, knowing you’ll be selling the house. If the answer is yes, you’ll probably want to be sure of your investment by getting a steady interest rate. The best answer is mentioned above: know the most that you can. If you can’t explain your decision to someone who isn’t in finance or real estate, it’s time to rethink your decision.
Find the Money First (plus a money-making secret!)
The mistake that people make with mortgages is the same mistake they make when budgeting for any purchase: they fall in love with the purchase and find ways to pay second. If you have years for a house to stay for sale, then this might work, but the real-estate market works a little faster than that. Falling in love with a dream house and vowing to “make it work” usually ends up making people “house poor,” where their mortgage makes them struggle from paycheck to paycheck. So, find out all of the information above and figure out what you can afford, then find the house that fits your budget.
The easiest secret for preparing yourself for your mortgage payment is to find out the dollar amount of the payment you’d have to pay if you signed the mortgage. Then, subtract your current rent or home payment from that amount, as it will likely be smaller. Take the difference out of your budget every month and put it into a high-yield savings account. If you can get by for months without struggling but “paying” more in rent/mortgage, you know you’ve budgeted correctly, and you’ve built toward your down payment. If not, the worst thing that’s happened is you’ve saved money! This simple trick can keep you from becoming “house poor” and lead you to the mortgage and house that will make you the happiest!
Finding a mortgage can seem scary, but it’s just a case of knowing the most that you can. With a little bit of research, you can prepare yourself with answers that will help save you money during your search. The right attitude helps, too: try doing all this in the second week of the month, or whenever you’re between paychecks. If you make all of your financial decisions at the same time, it’s easy to feel overwhelmed! So, relax, and know that you can get a mortgage for a house, but with research and knowledge, you can find a mortgage for your perfect home.