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Guide to financing your home

Essential Guide to Financing Your Home

There are two parts to buying a home. First, finding the perfect house! This is the part that you’re really looking forward to.

Second…getting a loan for the house. You’re probably not as excited for this part.

You’re going to have a long checklist of must-haves during your house hunting: preferred floor plan, size of the yard, number of rooms, etc.  That’s great and all, but the search turns more serious as you try to find the perfect balance between what you want and what you can afford.

It’s time to pay for the largest purchase you may ever make: are you ready?

Don’t freak out! You can ease the process by following this simple guide to financing your new home:

Get Your Financial Ducks in a Row
Buying a house is a long-term commitment, so you shouldn’t stretch out your finances! Draining your savings or dipping into retirement or life insurance accounts could leave you without a limited safety net. If a financial crisis occurs before replenishing the funds, you may be unable to pay your loan.

Before starting the journey of home ownership, be sure you have enough saved up for a down payment and closing costs. You should also leave enough money to cover any repairs or maintenance needs!

One way to ensure you don’t overcommit is to save the difference between your current and expected payment for a couple months. A working budget based on your anticipated new monthly payment, including taxes and insurance, will give you a dry run at the higher payment level. Becoming “house poor” is a tough situation to fix because of all the time and money it takes to sell a home: your best bet is to avoid it early!

Fine Tune Your Credit File
Lenders evaluate data from three credit reports. Before applying, get a free copy of each report and comb for errors. Make sure all the information is accurate: according to the Federal Trade Commission, nearly 42 million Americans have errors on their credit file, which can affect the loan being approved.

Be prepared to explain any blips on the reports, such as late payments or collections. Past negative marks may not prevent your loan, but lenders need to understand the circumstances that created the negative activity.

Set Your Personal Budget Before Meeting with a Mortgage Lender
Lenders use a formula to determine the amount you can borrow based on qualified income, credit score, and minimum payments on existing debt.

Your budget, however, may include expenses that the lender does not consider. For example, you may have retirement contributions, annual vacations, extracurricular activities, or other expenses, which may lower your preferred maximum payment.

Find a Loan That Works for You
Many homebuyers qualify for more than one loan program. Be sure to check out the different options available to compare programs and identify the best rate and terms based on your application.

In addition to different loan programs, you must also choose the interest rate structure of the loan. You gain the benefit of set costs with a fixed rate loan, with no change in interest for the loan term. A variable rate, on the other hand, starts at a lower rate, but can increase after a set period of five or seven years, and adjust annually afterwards.

A Mr. Cooper mortgage professional can help navigate the home financing process with you, so you can be fully prepared to buy a place to call home.