The National Association of REALTORS® released their latest consumer guides focused on preparing for homeownership. This guide covers what prospective buyers should consider as they kick off the home purchase process, including the importance of credit scores, mortgage pre-approval, down payments, budgeting, and educational resources.
How important is my credit score? Establishing a good credit history takes time, and it is never too early to start working on it. Your credit score will impact your approval for a home loan and the terms of your mortgage, including how much you can borrow and what programs will lend to you. Buyers with strong credit scores may benefit from lower interest rates on their mortgage. Using credit cards and paying the balance off on time and in full each month can help you improve or start building your credit score.
What is a mortgage pre-approval? Getting pre-approved for a mortgage can help buyers better compete in high-demand housing markets and, in some cases, can be required to make an offer. Pre-approval requires verified financial information and is different than pre-qualification, which provides an estimate of how much you can borrow using self-reported information. However, pre-approval does not lock in your mortgage rate, which may change with the market.
What if I can’t afford the cost of a down-payment? While down payments are typically 10-20% of a home’s purchase price, some buyers may qualify to pay a lower down payment, such as 3-5% of the purchase price through a government-backed mortgage, such as FHA or VA, or down payment assistance programs. However, these lower down payments often require mortgage insurance. A higher down payment can help you avoid the cost of mortgage insurance and potentially help you qualify for a better interest rate.
What other items should I budget for? In addition to your down payment, mortgage payments, and closing costs, there are many other expenses to budget for when preparing to buy a home. Items like moving, maintenance and repair costs, utilities and monthly bills, homeowners, and property taxes are also key considerations. Some buyers may also need to factor in annual or monthly payments to a homeowners or condo association, or hazard insurance for floods or fire.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
