Sis, you need a home! If you’re like us at TBG, figuring out your finances can be overwhelming. However, many of us may feel like renting is getting us nowhere and while we don’t have it all figured out, we know renting ain’t it. We sat down with a loan officer to get an insider take on what we need to know when preparing for our first home.
What are the top five things folks should know when buying a home? *
*heads up – some of these seem like no-brainers, but think, are you really setting yourself up correctly?
1. Pay your bills on time.
Paying your bills on time has the most profound effect on your credit score, and a lower score can cost you thousands of dollars more when borrowing money to buy a home. The entire point of a credit report is for lenders to see a potential borrower’s history of meeting obligations in a timely fashion. If a potential borrower has late payments, a lender is not going to loan money to that person. However, there is an exception to this standard. Some home buying programs and lenders will make an exception if the potential borrower can prove the late payments were due to a temporary situation that has been remedied, i.e. job loss, but has since started working again.
Home purchases shouldn’t be on a whim. Plan ahead by establishing what you want to spend and save for a down payment, which can also save thousands. Also, maybe don’t rush into a home purchase with your boo of five minutes? Even if you think it’s “cheaper than rent,” work past those feelings.
3. Be aware of loan terms.
Read the fine print! Ask your lender the following questions before signing that “dotted line.”
1. Is it a fixed rate or adjustable rate?
2. If the rate is adjustable, are there caps on the adjustments?
3. How will the adjustments change my payments?
4. Will my payments change with the rate, or will it affect the amount of my final payment?
You’re probably wondering what in the world is a fixed or adjustable rate?
Fixed rate loans are in which the interest rate cannot change during the life of the loan. For home buying/financing you might see 10-year, 15-year, 20-year, or 30-year fixed. If you sign a 20-year fixed loan at 4%, your interest rate will be 4% for the next 20 years, unless you decide to refinance.
An adjustable rate is very different. It means that the rate can change during the life of the loan. For example, the above 20-year loan at 4%? It may only be 4% for your first five years, and then every five years it could change throughout your 20-year loan.
4. Keep credit card balances to a minimum.
Carrying balances on credit cards over 30% of the available balance can lower your score even if you’ve never missed a payment, but it might not necessarily keep you from borrowing a home. You’ve lowered your chances to borrow funds, and you might be costing yourself more money through high interest rates and fees. Going back to our first point though, as long as you’re making the payments on time and don’t have more debt that you can afford, having a balance over 30% won’t completely stop you from buying your first home. Just know, your borrowing terms might not be as favorable, potentially costing your more money over time.
5. Have a ball park figure of your credit score.
We’ve all seen the Credit Karma commercials, right? Well, Credit Karma is a great option to keep tabs of your credit score for free on your mobile phone. It won’t be 100% accurate, but it will give you a good starting point. You can even dispute issues with your credit report right from the app, helping you get more of a handle on that score. Additionally, everyone is entitled to one free credit report per year from each of the three credit agencies: TransUnion, Equifax, and Experian. Take advantage of that free report!
Are starting your homebuying journey? Does owning a home seem like an impossible achievement?