You’ve probably heard that we’re in a buyer’s market. Home prices are low, and mortgage rates are low. And, since the home buyer tax credit has expired, there is speculation that home prices could remain low (or head even lower) during the rest of the year. So, even those who think they missed the boat, might find that they didn’t.
For many people, this is a great time to buy. It is possible to get a great deal on homes, and save money with lower interest rates. But before you take the plunge, it’s a good idea to get your own financial house in order. Here are 5 things to do before buying a home:
- Put your credit in order: One of the most important things that lenders look at before approving you for your mortgage is your credit score. For the best rates, you will need a 760. You can boost your credit score by making credit payments on time and paying down your debt.
- Pay down debt: Not only can it help boost your credit score, but it will make it more likely that you are approved for a loan. For the best home loans, lenders like your debt to be 28% (or less) of your income, with your home payment bringing the total debt load to 36% of your income.
- Determine what you can afford: Figure out what payment you can afford. Include the costs of property taxes, homeowner’s insurance, PMI and other costs along with your principal plus interest. It’s best if you try to keep it to less than 30% of your monthly income (25% is better). Maybe a modest house is a better option.
- Save up for a down payment: The less you can borrow the better. Besides, many mortgage lenders want to see a decent-sized down payment (at least 5%, although you can do a lower down payment with a FHA loan) these days. Take some time to save up for your down payment.
- Consider whether you really should buy: Take into account whether or not you really are ready to buy. This includes such items of the length of time you plan to be in the home, and whether there are any likely to be any big life changes that could mean moving sooner than 5-7 years.
Once you have determined that it really is a good idea for you to buy a home, begin shopping around for a home that fits your needs, and to compare mortgage rates.