Buying a Home in a Tight Credit Market
Gone are the days when you could buy a home with 0% down and an interest only, APR loan. With the number of foreclosures steadily increasing month after month, banks are much more hesitant to approve loans. Down payments are higher and credit scores are more carefully checked. If you plan on moving into a house in the near future, you should follow the recommendations listed below (even before you start looking).
Save Up for a Down Payment
If you´re thinking about buying a home in five years, now´s the time to start saving. With banks requiring anywhere from 20 ? 30% down, that means you´ll need to save anywhere from $80,000 - $120,000 for a home. Loans with lower down payments might be possible, but the interest rates will probably be higher.
Improve or Maintain Good Credit
Maintaining a good credit score is imperative if you plan to buy a house in today´s climate. To see where you stand (even two or three years before you´re going to buy), request copies of your credit score from the three main credit rating companies. If you see that there´s a few late payments, then now´s the time to start cleaning up your record. If you paid late on one bill due to a change of address or never having received the bill, notify that company and see if they´ll remove your late payment. If you have defaulted on a student loan, arrange a payment plan with the lender to resolve the outstanding issue.
Get Pre-Approved
To know where you stand, try to get pre-approved before you even start shopping around. It can give you a real sense of what you can afford and what you can´t afford. You might think that you can afford a $600,000 house, when in reality your income only pre-qualifies you for a mortgage of $450,000. With adding the down payment (i.e. $80,000) with the loan amount that means you´ll only be able to afford a home of up to $530,000.
Shop Around for the Best Rates
Lots of different loan scenarios are available, with lots of different mortgage companies vying for your business (even in a tight market). Just decide if you want a higher fixed rate or an adjustable loan, which can move up or down in the future.
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Linda Zimmerman, GRI, e-PRO, SRES |
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