Buying a home is fun and exciting. It might also be the most expensive purchase you’ll make in your life and that thought takes the fun and excitement away then is replaced with fear and nervousness. Knowing that it will cause you a lot of money makes you want to be extra careful but fear not because if you do enough preparation you are setting yourself up for a successful home purchase.
CHECK YOUR CREDIT
A good foundation to a smart financing for real estate mortgage is by checking your credit score. The health of your credit affects what loan you can get so the houses that you can choose from really depend on what your credit score can get you.
Getting your credit score is free and easy. A lot of major credit card issuers can provide your FICO score. There are also websites that can help you with this such as homelendingpal.com
IMPROVE YOUR CREDIT SCORE
Improving your credit score, unless it’s already in a really good shape, can get you better loans and house options so you’ll want to get it up. You need to have at least a minimum of 620 to 640 credit score to get a loan. Although some government backed loans can accept as low as 500 granted you fit the criteria they require.
To improve your score, it is a must that you pay all your debt on time and in full. Payment history is the greatest factor considered. In fact, it accounts 35% of your credit score. Also before a few months of applying for a mortgage make sure to avoid major purchases on your credit.
FIND OUT HOW MUCH YOU CAN AFFORD
Buying a house is an investment but it’s not the only thing you have to pay for in a month. You also have monthly recurring expenses to think of. That’s why it’s important to set a budget so that you don’t go overboard that will cause you to neglect other important expenses.
To know how much you can spend for your home purchase, start by assessing your debt-to-income ratio or by finding out the total amount of your gross monthly income. It is ideal to have no more than 43% on debt payments but having lower than 36% is better.
Just like your credit score, if your debt to income ratio is high you have stopped accumulating more debt than you already have and focus on dealing with eliminating existing debt. Do this a few months before applying for a mortgage. Staying within a reasonable budget is the first key in smart financing.
TYPES OF LOANS
There are different types of loans that you can apply for. Of course you’re bound by the criteria and requirements they are looking for so knowing what is right for you is a smart move. It can also help you get the best deal out of getting a loan.
To get you started, the first thing you should know is that there are two types of loans. First one being conventional, it is provided by private banks, credit unions, or an online lender. Second one is government-backed, these are your FHA or VA loans.
The next thing you can learn about is interest rates and the length of your loan.
These are all just the first few steps you can take that can help you in the right direction. After learning about necessary details then you can proceed with paperwork!