Friday, February 6, 2015

Saying Goodbye to Your Lease and Hello to Your New Home: Where to Start

Thinking of putting your days of renting behind you? Between credit scores, bank accounts, mortgage rates and existing loans, when is the right time to switch from renting to buying? Take these factors into account before saying goodbye to your lease and rest assured your venture into the land of mortgages will be successful.

Understanding your Credit Score
There’s a magic number in the world of mortgages, and it’s called the credit score. If you’re thinking of purchasing, this number is no longer an invisible variable, it’s now a transparent factor in securing the best rate available to you. A mortgage, or the loan acquired to finance the purchase of a house, is likely one of the largest debts that you’ll ever willingly take on and your credit score is a record of your past debts and spending habits used by your financial institution to help determine whether you are financially stable and reliable enough to pay back your loan in monthly installments, typically within 15 to 30 year agreements.

An excellent credit score of 750 points or above will ensure you receive the lowest mortgage rates on the market, costing you less in interest paid over the course of your mortgage, while a credit score ranging between 640-660 leans towards the lower end of the lending spectrum; anything below these scores and your ability to obtain a mortgage may be in jeopardy.

To improve your chances for securing the lowest mortgage rate possible, take a look at your credit score online to verify that you aren’t being penalized for past settled debts and transgressions. Refrain from opening any new credit cards at least a year before applying for financing, as too many open lines of credit will add up to a lower credit score, and may scare off potential lenders.

Consider the “Don’ts”
A few Don’ts to consider: don’t start closing all of your unused credit cards before applying for financing. Closing unused credit cards or transferring credit debt to a new account will lower your credit score and affect your ability to secure the best mortgage rate available. Tempted to purchase that new car you’ve been coveting? Hold off; adding a new loan to the mix or spending your hard earned savings could stave off your chances for acquiring home financing. Skipping or defaulting on any current loans and credit payments will take your credit score down notches as well. Prepare for obtaining a new mortgage by ensuring on-time payments to your open accounts.

Timing is everything
The right time to purchase a new home is when you can comfortably afford a mortgage payment, and not a moment sooner. A rule of thumb to ensure financial stability; home expenses should never exceed more than 28 percent of your monthly income. Committing to a mortgage with constraints that are too tight on your monthly budgets is a recipe for disaster. Until you can afford a mortgage that easily operates within your budget, you are better off renting.

A desirable loan candidate has at a minimum of 3-5 months worth of mortgage payments set aside in a savings account. Make sure you’re depositing a sizable portion of each monthly paycheck to pad your savings account if you plan on purchasing in the near future.

Consider the down payment and loan fees. Your mortgage will end up costing you more than just your monthly payments; you’ll be responsible for down payments and loan fees upfront. Start saving now, you’ll need anywhere from 3 to 20% of the home’s price for your down payment, and roughly $2,000- $4,000 to settle closing costs.

There’s such a thing as a ‘pre-approval process’ that amounts to extra time spent garnering mortgage financing before you even set out searching for your perfect home, and shopping for the best loan available to you is an integral part of the financing process. Call around to financial institutions in your area for a free, over the phone estimate of the loan you would likely qualify for. Be prepared to offer information regarding your income, assets, and debts. Pre-qualification can help you better understand the price range you’ll be working within when you do set out to check out your potential palace.

Pre-approval requires an appointment with a lending institution and delves into your credit history and current circumstances to potentially offer you a pre-approved loan in good faith, laying out the likely terms of your mortgage agreement in the event that you decide on a home to purchase and opt for a financing agreement with said financial institution. Going through the pre-approval process with several different lending establishments allows you to compare terms among different financial institutions to garner the lowest possible rate on your mortgage.

Dreaming of becoming a new home owner? St. Cloud Federal Credit Union can get you there. We can offer you a stress-free mortgage experience complete with the one on one attention you’re looking for to assist you in better understanding your options and the home buying process. We aim to provide you with the best loan available to you, to not only meet your needs, but exceed your financing expectations. From pre-approval options to indepth information to assist you in your first home buying experience, our mortgage loan department is ready to accompany you on your home-buying journey. Give us a call or stop in to our St. Cloud loan department today.

* Educational topics are meant to provide you general information. Examples are for illustration purposes only and are not specific to St. Cloud Federal Credit Union products.

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