6 Dos and Don’ts
The housing market has undergone a sea of change since the early days of this century. The easy and unethical loans of the “flippers” are gone, and once again banks are applying their full scrutiny to every transaction that they make. However, this does not spell trouble for honest homeowners. Because of the low interest rates and continually depressed condition of the housing market, now is the perfect time to find an excellent home with a loan obtained at a reasonable rate. Just follow this easy advice to make your dream of home ownership come true.
Build your credit rating.
Remember, no credit is the same as bad credit. To improve your credit score, take out a small loan with your bank and make payments on time and in full. Prompt payments on credit cards are another sure-fire way to build credit. Pay off old debts and set up reasonable payment plans for things like back hospital bills and student loans. Many people accrue small bills throughout the years, but they can severely damage a credit score. Once you have agreed to a payment plan and made some payments to the right creditors, your credit score will improve.
Save, save, save.
It helps the bank a lot when you have a large down payment for your home. Start a savings account for the down payment. Calculate how much you have to save to reach your goal by the time when you would like to purchase your home. Put away a steady amount each week, and watch your savings steadily grow.
Keep a low debt-to-income ratio.
The bank will look at how much you earn and divide it by how much you owe. This is called your debt-to-income ratio, and you should try to keep it low. Avoid taking on major obligations and large purchases when trying to obtain a home loan. The bank will be looking at the sum of your entire financial picture, so make sure you keep things clear, uncomplicated, and relatively debt-free.
Do not be unrealistic about what you can afford.
Take a long hard look at your finances and try to find a place that is a little less than what you can afford. There are plenty of practical choices for homes on the market these days. Be sure to budget money for closing costs, taxes, and emergencies. Remember that most people are overly optimistic about their future earning power, but the bank cannot afford to be.
Avoid major purchases.
Many people think that because the loan is in process that it is as good as theirs. This is not so. Nothing is certain until the contracts are signed. If the bank sees you making large purchases, taking on large debt, or generally being unpredictable with your money they may very well cut things off at the last minute. Keep your financial picture clear and uncomplicated. Do not cloud the issue and give the bank a reason to change their mind.
Do not think short-term.
Your home will be where you spend quality, long-term time. Maybe you will raise a family there, or work and live the way you always wanted to. Any way you look at it, you are in it for the long haul. Choose a house based on what you can afford now, but also be considerate about what you will be able to afford in the future. Rather than purchase hastily, be patient and wait for property you can see yourself growing old in. The bank is as concerned with the last loan payment as they are with the first, so make sure that this is a home that you will be comfortable in from the beginning to the end.
Obtaining a home loan can seem daunting, but it doesn’t have to be. If you stay dedicated and patient, follow these simple Dos and Don’ts, and keep your goal in mind, you will not fail.
Sam is a contributing blogger for a website which provides mortgage refinancing rates, and also provides information for those looking to repair their credit.