If you’re someone who knows how to budget and plan, or you have a high paying job and have managed to save up some money to buy a home, do you know the best place to apply that money? Well, most people are pinching pennies to save up for that elusive down payment...but what if you have a lot of debt? Or what about closing costs?
There are many variables to think about when looking into a home loan, but here’s my best advice: talk to a lender/loan officer/mortgage consultant now. While there’s different names for that professional who’s going to assist you with getting the loan for your home, they basically have the same job but different products to fit your situation and needs.
The reason I advise you to pick up that phone, is because you will be proactive in helping your loan qualifying; or if you procrastinate, you could do something financially that actually hurts your pre-approval...so why take that chance on one of the biggest purchases of your life?
An experienced loan officer is someone who knows exactly how the credit bureaus work when it comes to increasing your credit score, getting you better interest rates, or getting your monthly payments to where you want it to be.
Factors to Consider
Confused yet? Well, let’s take a hypothetical example to illustrate:
What if John has $25,000 in his savings and now wants to buy a home...how should he use these funds? Should he pay down that large Visa bill that he’s been accumulating? Or what about his student loan...or the 3 months remaining on his car payment? Or should he pay off a little of each?
He could use some of that money for a down payment, but how much of it? If he doesn’t have 20% down, then he will pay mortgage insurance (MI) with a conventional loan. How will that MI affect his monthly payments? What if he’s in the military...should he do a VA loan with no down payment required? What if he’s not in the military...does he know that if he buys in a certain area, he could do a USDA loan with 100% financing?
What if he doesn’t have good credit? Can he do something to increase his credit score quickly in order to buy sooner rather than later? How much does he need to factor in for closing costs? What if he didn’t want to pay closing costs out of pocket...is there a way to get a higher interest rate to cover some of those closing costs or should he ask the seller to help cover that? Can he go down to $100 in his savings account if he wanted to?
Ok, the point here is not to give you direction as to exactly where that $25,000 should be applied. The point is to set yourself up for success by speaking with a loan officer 3-6 months before you are ready to put in your first offer.
Ask that person to help guide you toward the best loan program for you depending on your particular circumstances, namely your current credit score, amount of savings/debt/income, the areas where you want to buy (or willing to buy for your first home), and your overall financial goals in terms of buying.
The good lenders are willing to invest their time into you, even though you may not be ready to buy tomorrow. Let them earn your business and loyalty by making smart choices in allocating that $25K.
Oh yeah, you should consult a real estate professional at the same time, so they can both be on the same page to help you find the right home at the right time. If you have any questions, contact a loan officer or me.
Did You Know?
By the way, don’t forget that lenders require you to have some reserves in your bank account for emergencies! And did you know that most lenders don’t factor in the debt if you have less than 10 months left on a car loan?