The Land of Home Lending! Five Things You Should Do if You are Planning to Buy a Home

My name is Barry and I am a mortgage banker!

… If that isn’t an opener that is sure to glaze over the eyes of anyone at the cocktail party!!! But trust me, it really IS interesting…

I’ve been doing this since the 1980s, so I hope I know a thing or two. One consistent observation over all those decades is that NO ONE looks forward to applying for a mortgage. I get it: it’s intimidating, it’s confusing, it’s full of arcane rules and arbitrary requirements. Mostly though, home loans are just not something we learn about in school, from our parents, at work, anywhere. It’s tragic to me that the vast majority of folks get ZERO education about something that usually is the largest financial decision of your life. There are just no opportunities to learn this stuff!

Well, don’t worry! I can teach you all about it! In this series, I will try to give you all you need to know about home financing and how to make it go smoothly for you.

ONE: CREDIT

Always work on your credit. Pay off balances each month if possible; resolve any negative credit or old balances; sometimes it even helps to open a new account, if you don’t have that much established credit.

You can get a free copy of your credit report every 12 months at this link: www.annualcreditreport.com – this is mandated by law to be available to you. Take advantage of this and review it to make sure it is accurate, and to see where you can improve it.

TWO: CURRENT RENT or OTHER HOUSING:

Make sure your rent payments are verifiable – if you are not paying by check on some recorded method (maybe you pay your roommate and they pay the landlord), you need to try to find a way to make sure you have a solid record of at least 12 months of rent payments when it’s time to buy.

THREE: MOOLAH

Keep your money in the bank – a lender has to be able to verify any funds you need for the purchase. $$$ hidden in a shoe or under the mattress does not count!

FOUR: BUDGET

This is both about saving up the money to buy a home, and about getting yourself in a position to be able to afford the payments when you buy. Ask your lender what payments might be, and get those numbers in your head early, so you can plan your other life choices with that in mind.

Looking for tips? Here are some great strategies for building a budget:

Budgeting Strategies to Consider

FIVE: SAVE for DOWN PAYMENT

You don’t need as much as you think. It is a common misconception that you need 20% of the purchase price to buy a home. Actually, you need as little as 3% (sometimes it is ZERO%). 5% is the most common scenario. So, thinking about buying a $500,000 home? You will need to have $25,000 as a down payment, plus about $3,000-$5,000 to cover closing costs.

Example: $500,000 home purchase = $25,000 + $5,000 = $30,000 at closing.

You probably don’t need me to do the math for you, but I recommend that you think about that amount as part of your monthly expenses – divide the amount you need by however many months you have before your purchase goal.

$30,000 = 18 months = $1,667/mo.

If you budget $1,667/month into your basic expenses, and physically set aside that amount into a separate account, it will help you build the discipline to do it.

SECRET BONUS TIP:

Down payments are typically the biggest obstacle folks have to purchasing their first home. Often someone can qualify for a mortgage amount based on income but lack the savings to hit that minimum 5%.

The Secret: 5% is not always 5%...

As mentioned, there are programs that require as little as 3% down, and even a couple that require zero down.

There are special grants and programs that can help you come up with the down payment. At US Bank we even have a Down Payment Assistance program that can offer you up to $12,500 towards the down plus a credit from the bank of up to $5,000. There are also state and federal programs that can offer similar assistance. Talk to your lender about these options.

Thanks Mom! The entire down payment and costs can be paid by a generous family member, employer, or friend as a gift. Remember that at Thanksgiving when talk turns to politics…

Next time I’ll share with you some important DON’T’s about preparing to buy a home! Thanks for tuning in!

Barry

Office: 406-447-5208 | barry.conger@usbank.com