How to Prepare for a Home Purchase in 2010

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With all the talk and controversy in the last year about the housing market and mortgage industry, it’s a wonder people are not petrified of buying a home in the new year. While things seem to be leveling off a bit, there have been some major changes made and getting low-interest financing is going to be tougher than ever before. Anyone looking to buy a home this year needs to do their homework and be really prepared before even considering a home-buying venture. Here are a few tips to make your home purchase a success from start to finish.

Be clear on your credit

Mortgage requirements are much stricter and lenders want to see proof of your credit worthiness. A credit score of 720 used to be the magic number to enable low-interest loans, but most lenders expect 740 or higher now in order to offer the best rates and fees to borrowers. Request a copy of your report and score as soon as possible. If your score doesn’t live up to those standards, get to work immediately at improving your credit score before approaching any mortgage lender.

Understand the numbers

Many people do not consider how much house they can afford. Instead, they base everything on loan interest rate and amenities. Savvy consumers will focus on the true amount owning a home will cost them. Experts recommend following the guidelines of the Federal Housing Association, who suggest that house payments (including taxes, principal, interest, insurance, and any homeowner dues) should not exceed 31% of gross monthly income. They also recommend that a consumer’s total debt payment should not exceed 43% of gross monthly income. Do the math. Be sure you will not go drowning in debt with a home purchase.

Save for a down payment

If you are ready to buy, you should have enough cash to cover at least 10% of the down payment as per most lenders requirements. If you haven’t saved enough, look into a FHA-insured mortgage where you need 3.5% of the down payment amount. If you have no down payment money, you can investigate VA loans from the Department of Veteran Affairs.

Grab a loan early

There are plans for the Federal Reserve to quit buying mortgage-backed securities by the end of March so experts believe rates will go up when the support is gone.

Inquire about loan options

While fixed-rate mortgages are typically the safest way to get a loan, ask about the other options. For instance, an adjustable-rate loan may be ideal if you only plan to stay in the home for 5 years. Check out not only the interest rates but also the available discount points and other loan scenarios.

Again, know that the housing and mortgage industries have changed a lot in a short period of time and what used to be ‘good enough’ is what started this fiasco in the first place. If you are serious about home ownership, get started on the research, the math, and the savings, and the credit improvement as soon as you have an inkling you are ready to buy. The more prepared you are, the better deal you will get, and the lesser the financial burden in the long run.

Are you in the market? What problems have you encountered?