Five New Year’s Resolutions for Home Buyers

It’s about a month late, but it’s still January, right?  So with the new year upon us, I thought it might be a good opportunity to list five New Year’s resolutions for home buyers.  Sure, we focus on Wilmington, Leland and the southeastern portion of North Carolina, but these homebuying New Year’s resolutions are pertinent to anyone who has been working on or is planning to buy a home.

Homebuying Resolution #1: Make a significant downpayment.

There are reasons to make a significant downpayment when buying a home, the most obvious of which is that the more you put down up front, the more you’ll save in the long run.  Let’s take a look at some numbers.

You’re looking at a $250,000 house.  If you were able to put nothing down on it with current (as of this writing) interest rates, a 30 year fixed mortgage payment (with taxes, insurance and all that fun stuff) would be $1774.  If you were able to save up and make a 20% downpayment, you’d instead be looking at $1319.  That’s a savings of $5460 a year.  To put it in more impressive terms, that’s a savings of $163,800 over the life of the mortgage.

Of course, not everyone can realistically make a 20% downpayment.  However, even a 5% downpayment under the same conditions could save you over $74,500 over the years.  So if you’re looking to buy a home, try to put as many pennies as you can into that initial downpayment.

Homebuying Resolution #2: Get your credit in order.

Unless you are planning to buy your home with cash, which, let’s face it, very few of us can do, you’re going to need a loan, and your loan will be determined by you credit score.  To get a good loan, you’re going to need to get your credit score above 700 in order to get the best possible interest rate.  Some lenders even want to see a score of 720 or more.  So what can you do to help get your credit up there?

The best way to do it is to pay all your bills in full on time.  And while some people are tempted to cut up their credit cards after taking care of any outstanding issues, that’s actually not the best thing to do to keep your score up.  You should have several open and active lines of credit at any time.  You don’t need to max them out; in fact you should probably not use more than 20% of what’s available to you.  Just remember the first part of this resolution: Pay everything off in full every month.

Homebuying Resolution #3: Get the best loan you can.

You’ve saved up your money for a nice, large downpayment and you’ve got that credit score above 700.  What do you do now?  Now you go out and get a home loan.  Don’t take the first loan you find though.  Make sure to call around and talk to different lenders in order to get the best interest rate you can.  It doesn’t end at interest rates though.  You’ll want to ask about any other fees, whether there’s a prepayment penalty, points, mortgage insurance and so forth.  You might want to seek the help of a professional once you have all your information together.

And that brings us to…

Homebuying Resolution #4: Use the best real estate professionals you can find.

Real estate is big business, and there are a lot of different people involved in real estate transactions.  There are the buyers and sellers and real estate agents, of course, but then you’ve also got the mortgage company, appraisers and lawyers, at least.  Purchasing a home is a big deal, so you want to make sure you’re surrounding yourself with the best, most competent real estate professionals you can.

How do you find those people?

A lot of people rely on word of mouth.  If your parents or your friends bought a house not too long ago and raved about their lender, they might be someone good to talk to, right?  The answer is “yes” with an asterisk.  The footnote should be that you can start with people who were recommended to you, but you should also do some of your own research.  Check out online reviews or sources like the Better Business Bureau to get more insight about the people who will be helping you move into your home.

Of course, if you’re looking for a real estate agent to help you buy or sell a home in Wilmington, Leland or the surrounding areas of southeastern North Carolina (especially if you’re looking at short sales), look no further than Nilesh Jethwa and Associates.  Give us a call at 910-622-0319.

Homebuying Resolution #5: Do it for yourself.

One thing to remember is that YOU are buying this house.  YOU are going to live in it.  Friends and family sometimes think they know what you should do and apply pressure for you to settle or to live somewhere that might not be your first choice.  They might have your best interests at heart, but remember that this is your house and your investment, so you need to be happy with where you end up.

 

Short Sales and Credit Scores

There are many events in your life that could negatively impact your credit score.  One of those events that I often deal with is the short sale of your home.  A short sale, essentially, is when a person sells their home back to a mortgage company for less than what they paid for it because the home is now worth less than it was when it was purchased.

A short sale will negatively impact your credit score.  The amount of impact varies from person to person and from situation to situation.  However, everyone’s score will be negatively impacted, and one of the most common questions I get is “How do I improve my credit score after the short sale?”

Improving one’s credit score will take time – there is no “quick fix.”  But by focusing on certain aspects of your credit, you can try to lessen the blow.  Here is a look at how your credit score is comprised, and tips on how to utilize this information so that the short sale does not have as much of an effect:

Payment History
35% of your credit score is based on your Payment History.  Even if you are unable to make your house payments, try to make at least the minimum on your credit cards and other loans you may have.  This will make the impact a little bit less harsh

Amounts Owed
The next largest part of your Credit Score is the amount you owe – 30%.  If you decide to do a short sale and cannot pay your mortgage, try to put some of that extra money towards paying off your credit cards or car payment.  The less outstanding debt you have, the better, and the best thing you can do for your credit score is to pay your accounts off as soon as you can.

Length of Credit History
It may be tempting to close your credit cards once you start getting into financial troubles, but 15% of your credit score is based on how long you have had your accounts open.  If you can manage your accounts, it is best to keep them open.  This does not have as much impact as your payment history or the amounts owed, but it is the third largest portion.  If you are having troubles keeping up with the minimum payments and you have high interest rates, the creditor may offer to lower the APR if you close the account.  This will impact your credit score, but it may be the best option if it makes the payments more affordable.  Be sure to weigh the pros and cons; if you are afraid you will be late, that will have a higher negative impact than if you close the account.  But if you can afford the payments, and keep your account open, that will actually help you increase your score.

New Credit (10%) and Types of Credit Used (10%)
If you open several new credit accounts in a short amount of time, that is a red flag – It signals to the Bureaus that you are in financial trouble, because you need to borrow money.  Also, different kinds of credit have different effects – Retail accounts are not looked at as favorably as, say, a car loan.  If you are having financial difficulties, opening new accounts will not help you improve your score, and will most likely have a negative impact.

These are some ideas to keep your short sale from impacting your credit score as much as it could.  If you would like some more information on your credit score and how it is formulated,  click here for more information at MyFico.com.  You can also give me a call at (910) 622-0319 or  email me by clicking here.  As a short sale expert, I’ve helped people in many different situations.