About the Author: Rob Walworth is the Director of Mortgage Sales at BECU.
There is a LOT of advice out there for buying a home. Rightfully so – because unless your last name is Gates or Branson, it’s probably the largest investment you’ll ever make.
As BECU’s director of Mortgage Sales, I’ve helped many people make that investment. While everyone’s finances, like their dream homes, are unique, one thing remains the same: There’s a big difference between feeling ready to buy a home and being truly prepared. And in hot markets, like Seattle where buyers outnumber sellers and house prices are on a steep rise, preparation helps buyers become competitive.
Going from ready to prepared is a journey. Here are a few things to consider along the way:
- Know Your Credit Score. It pays to have good credit. A low credit score doesn’t just increase the interest rate on your loan, it can make your closing cost jump by hundreds (or thousands) of dollars as well. You’re probably familiar with free credit reports, but I recommend getting your FICO score at myfico.com. It’s not free like simpler credit reports, but it will show you exactly where you stand. Scores range from 300-850, with scores above 740 most often earning the best loan rates.
- Understand Your Down Payment. You’ve probably heard the “20 percent down” rule of thumb and for good reason – most down payments below 20 percent require additional private mortgage insurance (PMI) that protects the lender in case you default on your loan. That said, there are plenty of options if you can’t afford a 20 percent down payment – from gift funds to down payment assistance programs. The best way to get started is to sit down with a mortgage specialist to hear about your options. Or you can use the mortgage calculators on org to get a feel for payments and what you can afford.
- Factor in Additional Costs. Remember, having thousands of dollars sitting in the bank doesn’t mean that’s the down payment you can afford – home inspections, earnest money and closing costs are important upfront costs to consider. Monthly payments can add up fast too. Beyond your monthly principal and interest payments, be ready for taxes, insurance and potentially PMI fees or Home Owners Association dues.
- Be Ready to Move Quickly. Especially in hot markets like Seattle, those who are prepared and act quickest often win. That means being pre-qualified for a loan. In fact, some realtors require their clients to get pre-qualified before they even start showing them houses. To get started, complete a mortgage application for a lender.
If you feel like your savings account isn’t up to par, you are not alone. One of five people surveyed by the NFCC and BECU say the current economic climate has caused them to save less than last year. If your savings need a tune-up, check out NFCC’s Money Management Tips or BECU’s online financial education tools. With articles on budgeting, money saving, debt management and more, you’re almost certain to find pointers to help you along.
Home buying is a process, but it doesn’t have to be a scary one. If you want to learn more about how to go from “ready” to “prepared,” you can also check out our online First-Time Homebuyer Course.
Get prepared, get out there and have some fun. Happy home hunting!