The Home Buyer's Korner

Information presented should be used for educational purposes only.

July 8th, 2015

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The Home Buyer’s Korner

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A Millennial’s Guide to Buying A First Home

Milliennials

Low mortgage rates play a large factor whether home buyers are able to save tens of thousands of dollars in interest.

A one percent difference in the mortgage rate can save you $120,000 over 30 years for a mortgage valued at $600,000. Having a stellar credit report plays a critical factor in determining what interest rate lenders offer home buyers, but other issues such as the amount of your down payment can also impact it if you’ve decided on a conventional mortgage.

A high credit score is the key to ensuring that home buyers receive a low mortgage rate. Here’s a quick rundown of what the numbers mean for conventional financing – a score of anything below 620 ranks as poor, 620-699 is fair, 700-749 is good and anything over 750 is excellent. If you’re credit score is closer to the lower range it’s probably a good idea to explore financing option offered by FHA or USDA.

Review your credit reports for any inaccuracies such as an incorrect outstanding balance or history and correct them. Some home buyers looking to shore up their credit consider costly credit repair service, but it’s best to avoid them because you can make the disputes yourself.

Think carefully before canceling a credit card with a long, positive history. The longer you hold a card, the more valuable it is in your credit score determination. If you have more than one card and want to use only one, store the others away but don’t close the accounts.

Decrease your credit card debt is one of the biggest factors which impacts your credit score. Your goal should be to get debt as low as possible. If you’re carrying balances on credit cards that exceed 35 percent of the available credit, then you’re hurting your credit score. One of the fastest ways to increase your credit score is to call your credit card companies and ask them to increase your credit line as a quick measure to boost your score.

Shop for rates within 30 days of your first mortgage inquiry date since home buyers can apply with multiple mortgage lenders within this period and it won’t negatively impact your credit score. Each lender will want to check your credit, but the only credit pull that impacts your credit score is the first one, if it’s done within the 30 day window.

Rather than jumping at the most tantalizing advertised rates, form a relationship with a mortgage lender that is willing to watch the market for you. One of the challenges is that mortgage rates often change very quickly and these rate movements are not visible to the consumer in real-time.

Most mortgage bankers have real-time access to market improvements and are able to take advantage of them when they happen. More often than not, a mortgage loan officer can call a home buyer to let them know their target rate has become available before the average consumer has any idea.

It pays to be organized since not having all your financial documentation in order is one of the biggest bottlenecks in getting a mortgage application complete and interest rates move daily. Usually, you can only lock your interest rate for 30 days without incurring additional fees, but it doesn’t do you any good if you don’t have your documents in order.

The Federal Housing Administration (FHA) mortgage is a great option if a home buyer is concerned about receiving a lower interest rate and haven’t been able to accumulate the 20 percent standard down payment of on conventional loans.

FHA loans can be a good option for home buyers purchasing their first home because they require much smaller down payment of 3.5 percent. They also do not require high FICO scores, but home buyers must pay a mortgage insurance premium each month, which adds to the cost of the loan. However, if you’re thinking about securing a conventional loan and don’t have at least 20 percent to put down, you’re going to be required to carry private mortgage insurance. It’s not quite a expensive as FHA Mortgage Insurance, but it isn’t cheap either. Homeowners who are able to afford a 20 percent down payment do not have to pay private mortgage insurance if they secure a conventional loan, which costs another 0.5 percent to 1.0 percent and can tack on more money each month. Having at least 20 percent in equity shows you have “more skin in the game and this usually means a better interest rate because of the lower risk of default. Given that millennial households tend not to have the savings for a substantial down payment, FHA home loans can be an attractive option.

First time home buyers should also look into home affordability programs. State and local housing agencies, government agencies, and financial institutions offer loan options which could provide both low-interest rates and low to no down payment options and your best resource to find out about these programs is either your real estate agent or mortgage lender.

It’s important to remember that the costs of a loan are closely associated to how ‘risky’ it is to give the loan. If you look like a riskier first-time home buyer, your loan will cost more.

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A SIMPLE HOME SHOPPING INSPECTION TOOL

Organizing your home shopping experience affords a wise decision-making process.

This simple home inspection tool makes your ultimate buying decision a smart one.

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