When searching for a new home, you may come across some conflicting information, especially about home financing or mortgage loans. Consider these six money tips to help you navigate the process.
• Know your credit profile: Your credit score may impact the interest rate or the amount of money you can borrow. Once a year, you may obtain a free copy of your credit report from each of the three credit bureaus at annualcreditreport.com, the official site for free annual reports.
Having great credit is certainly helpful, but not required. Homebuyer education and home loan financing programs are making it easier for homebuyers with a range of credit scores or limited credit history to obtain a loan.
• Manage debt: Another important factor mortgage lenders evaluate is debt-to-income ratio. A good rule of thumb is to keep your total debt level (taking into account the potential new mortgage payment) at or below 36 percent of your gross monthly income. You can find debt-to-income calculators online.
• Show them the money: A Wells Fargo survey found that more than a third of people believe you need 20 percent of the home purchase price to make a down payment. The reality is, some home financing or mortgage programs allow qualified homebuyers to put down as little as 3 percent. And for those who qualify for special mortgage programs—like military veterans or those purchasing rural properties, a down payment may not be required at all. You may also be allowed to use monetary gifts from family or friends for all or part of the down payment. In addition, certain community programs offer down payment assistance.
Keep in mind, some low down payment programs may require private mortgage insurance, which adds to the monthly payment and overall loan cost. You’ll need to add that into your debt-to-income consideration.
• Demonstrate proof of income: Home mortgage financing programs are available for a range of incomes. The key is demonstrating your ability to repay the loan. Lenders will review your income history and require current W2s, tax returns or similar documentation.
• Have a rainy-day fund: Lenders want to see that you have savings or a cushion to handle unexpected expenses that come with homeownership, such as a leaky roof or failing appliance.
• Get pre-approved: Getting pre-approved is a good way to understand what kind of home loan product or program you may qualify for. Digital services are streamlining the process considerably. With a few clicks, any user can upload income, payroll and tax information.
“Our intuitive, mobile-ready technology offers homebuyers choices in how they engage in the mortgage application process. Consumers have the option to complete an application online, and still have the opportunity to speak with a home mortgage consultant if they have questions. In many cases, house hunters can actually be pre-approved immediately,” says Liz Bryant, national sales manager for Wells Fargo Home Mortgage. “Digital services give prospective homebuyers the ability to navigate their mortgage application where and when they choose – relieving some of the pressure of making timely decisions.”
For a smooth home-buying experience, it’s important to know your options, use programs designed to help you, and access services that streamline decision-making.