How High-Interest Rates Can Be Overcome

 The better your credit score, the better interest rate you can get when it comes to mortgages. In fact, the first thing a mortgage lender will look at is your credit score. This is now more important than ever in today's housing market.

A High Credit Score Means you Pay your Debts on Time

A mortgage lender wants to know that you will repay your money on time. Those who pay back slowly or do not pay back at all have lower credit scores. Lenders do not want to risk those who pay back slowly.

This doesn't mean that they will not offer you a loan, but it will be at a much higher rate to compensate for the risk. For example, the difference between a 4% rate and a 5% rate on a 100,000 30-year loan is around $59 per month, over the age of the loan that will cost $21,240!

A High Credit Score Means you Have a Good Mix of Credit

A good score also depends on your credit mix. You want to be able to prove that you can handle a variety of debt such as credit card and no installment debt. A mix of both revolving and installment debt shows that you can handle both types of debt. Showing that you can handle both can help you get a lower interest rate.

Why Lenders Base your Interest Rate on your Credit Score

Mortgage lenders will tell you that your credit score is the number one factor in determining your risk of default. If you are approved and have less than stellar credit, you will be charged a much higher interest rate. The lenders will make more money off of you in the event you do default.

Increase your Mortgage Credit Score Before Applying for a Mortgage

If you do have a lower score, then think about improving it before applying for a mortgage. Get your debt under control, have a stable job, and have some money saved before you apply for your mortgage. Improving your credit score is the key to a lower interest rate and with a few simple steps, you can accomplish this.

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Steps To Take When Buying A House

They say buying a house is part of the American dream. Buying a house is one of life's biggest events. When you are ready to take the leap, here are some steps you need to take.

What to Consider Beforehand

Make sure you are ready to become a homeowner because it is not always the best decision for everyone, renting might be the best way to go for some. There are a ton of responsibilities that come along with owning a home such as regular maintenance, inspections, taxes, and more.

Another thing to consider is the timing factor. Look at the mortgage rates and home prices are they rising or staying the same? If the rates are starting to take a leap, then you might want to move quickly. Also, the time of the season can also determine the best time for you to start your search. Spring is typically when listings hit the market. This means that there will be more options for you to choose from. On the downside, it is the most competitive season for buyers.

The last and most important thing is are your finances in good shape. Only set out to purchase a home if you are financially stable. Remember you will need to set aside savings for a down payment and closing costs. If your credit score could be higher, pay off some of your debt to boost your score.

How to Plan Your Budget

Budgeting is essential when it comes to buying a home. Set a time frame of how long it will take you to build up a good down payment. Once you have this timeframe, research Realtors in your area and find the best fit for you. Keep in mind that it takes around a couple of days to a couple of months to find your ideal home, then around 30 - 60 days to complete the transaction from contract to close.

Along with finding a real estate agent, you will need to find a mortgage lender. The best bet is to shop around for the best rates and offers. This will also depend on your credit score. Having an established credit history and a high credit score can allow you to get a better rate on a mortgage.

To check your score, obtain a credit report from Experian, TransUnion, and Equifax. These three credit bureaus allow a free report every 12 months. Lenders typically require a credit score of 620 or higher to be able to obtain a mortgage. If your score is a little iffy, raise it before you apply for a loan.

In order to raise your credit score you will need to pay your bills on time, pay off debt and keep a low balance on your credit cards, and check for any mistakes on your credit report. Lenders want to know they can depend on you to pay you mortgage payment on time.

If you are not able to raise your score or get it over 620, then there are other financing options available. The Federal Housing Administration (FHA) only requires a score of 500 with a 10% down payment or 580 with a 3.5% down payment.

How Much House Can I Afford

When buying a home, you are not just paying the listing price, there are hidden costs. When budgeting, allow for a down payment, closing costs, moving and maintenance costs, as well as an emergency fund for any unplanned maintenance.

You will need to set aside at least 20% of the price of the home for a downpayment on a conventional mortgage. Closing costs are another thing you will need to pay out of pocket which can be between 2% and 5% of the home's purchase price. Remember to always factor in closing costs to your budget! You will also need to pay to move and make any necessary repairs before moving in.

Along with your monthly mortgage payment, you will also have monthly expenses such as utilities, transportation, groceries, entertainment, childcare, credit card debt, savings, etc. A good rule of thumb is for your mortgage payment to be below 28% of your monthly income.

Shopping Around for the Right Everything

When purchasing a house, you not only have to shop around for the right home, but also for a Realtor and a mortgage lender. Doing your due diligence on both can save you time, money, and heartache.

There are many lenders out there who offer different rates and terms. Shop around for the best lender who offers better products. There are several different types of loans with different qualifications. A lender can help you choose the right one for you and also get you pre-approved.

A pre-approval letter can sometimes be the golden ticket for the seller. This tells the seller that you are a serious buyer and you have the finances to back it up. In order to get a pre-approval letter, your lender will need to verify your finances and check your credit score.

A Realtor is your saving grace through the entire process. When choosing a Realtor, it is always good to get referrals. You want to make sure the agent your are considering has a good reputation and experience. It is a good idea to interview several agents to see if they are a match and would work well with you.

Once you have a lender and a Realtor you need to find your home. An agent can help narrow your search by finding a home that fits most of your needs and wants. Your agent should have an extensive amount of knowledge about the neighborhoods you are interested in.

Reaching the Finish Line

Once you have found your home, it is time to make an offer. Your Realtor will advise you on the best approach and will negotiate your contract. Once everything is settled such as contingencies, a home inspection, and disclosures, you are ready to close. Remember your Realtor will help you along the way and make sure you get the best deal.

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Seven Tips to Make Buying a House Easier

 
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Purchasing a home is in the top five most stressful events. Buying a house can be a complicated process but there are ways to make the process easier. Here are seven things you can do to simplify the process of purchasing a home.

1. Get your paperwork in order

 

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Getting your paperwork in order such as two years’ worth of tax returns, current pay stubs, bank statements for the last three months, cancelled rent checks, or copies of your lease for a loan application is one of the first steps. You will need to be pre-approved for a specific amount. This will help you with how much you can afford on a house. Realtors and sellers both want to see a pre-approval letter that lets them know you can afford the home and you are a serious buyer.

2. Find a real estate agent you can trust

 

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Finding the right sales agent is a very important step in the process of purchasing a home. Before choosing, interview at least three real estate agents. You will not only want to have a good rapport with an agent, but you will want to make sure they are well-rounded in the community you are looking to purchase a home in. You will want to choose an agent with the best track record of sales in your area, the best online or personal recommendations, and the one you like best. Staging, keeping a home show-ready, and listening to tactfully delivered feedback from people who’ve viewed your home means you’re going to be interacting with your agent a lot.

3. Start researching banks, credit unions, and loan officers

 

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Just like choosing the right real estate agent, choosing the right place to apply for a loan for your home is just as important. There are many types of loans and different institutions to choose from. Sometimes it might seem best to use a bank or credit union, but this is not always the case. Many times the banks and credit unions have vested interest and might push you to use certain Realtors, attorneys and home inspectors because they receive a portion of the commissions.

4. Get your financing in order

 

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After you have chosen your mortgage lender, you will need to get pre-approved. As mentioned earlier, you will need to have your paperwork in order along with your finances. The pre-approval letter is your ticket to let sellers know you are a serious buyer who can afford their home.

5. Find a home inspector you can trust

 

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A home inspector is a key factor in the success of your home purchase. You want to choose an inspector you can trust who is looking out for your best interest. In an older home, a trustworthy inspector will point out areas of concern such as problems with termites, water seepage, or shoddy construction. Find an inspector who would not mind if you tag along during the inspection. This is a good time to ask questions and get their advice.

6. Consider investing in title insurance

 

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Purchasing title insurance is a safety net against anything that could pop up on the property such as a lien. Title insurance cost from $1,000 and $3,000 on average, or .05 percent of the purchase price and is worth the cost. In many cases, mortgage lenders will require you to get title insurance.

7. Get your tradespeople lined up

 

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Renovations or repairs are a big part of homeownership. Have tradespeople lined up so that when something does go wrong, you can call on the spot. It is important to make sure they are reliable and honest. Ask around at places such as an independent home supplier. An independent home supplier will usually have the low down on who does sloppy work and who does good work.

Remember never try to purchase a home on your own. Follow these steps to simplify your home buying process. A local real estate agent can guide you through the process.

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What You Shouldn’t Do After Applying for a Mortgage

Applying For a mortgage is a big part of purchasing a new home. This can be an exciting yet daunting task.  Here are a few things you shouldn't do once you have applied for a mortgage.

Speak to your banker or lender before depositing cash into your bank account.  You do not want to deposit a big chunk of cash into your account all of the sudden. During the mortgage process, lenders need to be able to track where your money is coming from and cash is not easy to track. You can deposit cash during your mortgage process but you will need to discuss how to document your transactions with your lender.

Put big purchases on hold until after the application process. Purchasing new furniture or a new car is a big obligation and will bring monthly payments. Lenders take in all monthly expenses when qualifying you for a loan. If new obligations are created then you will need to be reviewed again. A higher debt-to-income ratio will have to be adjusted. Lenders will tell you that higher ratios equal riskier loans.

Hold off on any co-signing for anyone on their loan. Co-signing is just like obligating yourself to someone else's loan. These obligations will also make you have a higher ratio. Although you are just co-signing, a lender looks at this as another expense you are responsible for.

Do not change bank accounts. One of the steps on a mortgage application is to list your bank accounts. Lenders need to be able to see where your money comes from and where it goes. If you were to change bank accounts during the process, this can hinder a lender from sourcing and tracking your assets. If you have no other option but to change bank accounts, speak to your lender.

Now is not the time to apply for a new credit card. Whenever a financial organization runs your credit report, your FICO® sore is affected. The higher your credit score the better interest rate a lender can offer you. Lower credit scores will not only determine your interest rate but can also hinder you from being approved for a mortgage.

Keep your current accounts open. There is a misconception that less is best when it comes to open credit accounts. This is not true, in fact, it helps to have a long list and depth of credit history. Closing a credit account can actually create a negative impact on your score.

Remember to keep an open line of communication with your lender throughout your mortgage application process. If you have a change in income, job or have to move things around you should share all those things with your lender. The best plan is to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.

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