Buying a home is a major milestone in the lives of most people, signaling adulthood, responsibility, and security. Make sure you know how to get financially ready for a new home by following a few simple tips.
Check your credit.
This is a refrain you’ll hear over and over again and for good reason. Your credit score is the first thing mortgage lenders will look at and is an absolutely critical factor in determining your interest rate. The best rates go to people with FICO credit scores over 740. Even a one-percent reduction in your interest rate can shed thousands from your housing payments over the life of a 30-year loan.
Save for a down payment.
Lenders generally like to see a down payment of at least 20 percent. If you have saved this much, fantastic—you’ve greatly reduced your interest payments over the next few decades. However, if you don’t have substantial savings, don’t despair. If your FICO credit score is over 680, you may be able to get a conventional loan with only a five percent down payment. Even if your score is under 680, you may be able to quality for a Federal Housing Administration (FHA) loan for as low as three-and-half percent. If you’re a veteran, you may be able to get a loan from the Veterans Administration with no down payment at all.
How to get financially ready for a new home? To be sure, securing a mortgage requires planning and persistence. But by following the steps above, you could be walking into the house you’ve always wanted in less time than you ever imagined.