Getting Started in Home Ownershipby Alden Smith
Home ownership is the dream of every couple. Having a place of your own brings stability, the pride of ownership and the right to do as you please with the home and grounds. Knowing where to begin is the first step. The focus of this article is on getting started in home ownership.
As in any major investment, it pays to know several things before you approach a lender. With the market in an unstable condition recently, many people with blemished credit are having a tough time securing a loan. To make matter worse, predatory and unethical lenders take advantage of the market, and it is easy to be taken in by this slick group of lenders. Now more than ever, "let the buyer beware" should be the caveat of all prospective home buyers. Before you make the decision to buy, do a thorough check on your credit to help determine the ability to buy.
First Things First
It makes little sense to approach a lender if your credit is less than perfect. Get a copy of your current credit report and study your credit history. These reports can be obtained for free online through sites such as Experian, Equifax and TransUnion. Their parameters are based on the guidelines of the Fair Isaac Corporation (FICO). A good place to begin this process is through visiting AnnualCreditReport.com, who claim to be the official site for consumer credit reports. Obtain your report and check your numbers. If your credit score is 720 or above, you are an excellent candidate for a loan. 620 to 650 is considered to be a good risk. Anything below these figures is considered to be sub prime.
If you find that you are an excellent candidate for a loan with a credit score of 720 or above, begin the search for an ethical real estate agent. Use referrals from family or friends, and ask business owners you are familiar with for recommendations. Always interview the agent to determine their area of expertise. If the agent is on the up and up, there should be no problem with questions asked. If the agent appears unsure of themselves, then use good judgment and move on. Good agents will answer all questions quickly and truthfully. This interview process is essential to your success.
Find an Ethical Lender
It is essential that you only deal with a lender that has a high code of ethics. Interview the lender in the same way you did the realtor. Do not be intimidated by a lender, or think you are wasting their time. It is, after all, your money. Visit at least four lenders before making your choice.
The lender will look at your debt to income ratio. This figure is currently 28/36%. The first figure, 28%, is what the lender feels is the maximum amount of your gross income that is available for monthly mortgage payments. This includes monthly mortgage payments, private mortgage insurance if you must pay it and property taxes. The second figure, 36%, is the amount the lender signifies as housing expense and recurring debt. This includes such things as utilities, phone and cable bills and trash removal.
Pre-qualifying for a loan tells the seller that you are committed to buying a home. The process of pre-qualifying is simple and painless. A seller will be more willing to negotiate if they know you are pre-qualified for a home loan. When you have determined you are capable of paying a monthly mortgage payment, the lender will go through your credit history, verify employment and income and generally do a property appraisal on a home you are interested in buying. A certificate or letter is given to you by the lender to verify that you qualify for a loan of a set amount.
Start Your Search
Once the groundwork is in place, you can begin the process of finding the ideal home. Knowing that you pre-qualify helps considerably in narrowing down the search. This process should be enjoyable to you and your family. Look at homes you know you can afford, but also look at homes that may be priced higher than you qualify for. Often, the owner may be anxious to sell if the home has been on the market for a long time. The owner may negotiate with you to unload the home, and you can generally get a reduction in price. Be determined to find the home that is perfect for you and that is in your price range.
Always be cautious when entering the real estate market. A little education goes a long way in helping you to both determine what you can afford, and how to find ethical lenders and real estate agents to work with. Use common sense, and your dream home can be yours.