Washington, DC – According to a recent poll hosted on the National Foundation for Credit Counseling (NFCC) website, www.DebtAdvice.org, the American dream of homeownership is alive and well. When asked what they were most anxious to do if their financial situation were to improve, more than half, 51 percent, indicated they would buy a home. Home repairs and improvements captured the second highest number of respondents, with 23 percent selecting that option.
"Homeownership has traditionally been a part of sound financial planning," said Gail Cunningham, spokesperson for the NFCC. "With a combined total of 74 percent of respondents selecting a home-oriented option, the poll results strongly suggests that people continue to place value in owning a home, and are anxious to buy a house or improve their existing one."
Consumers waiting in the wings for the opportunity to purchase a home would be wise to begin preparing now, even if the actual purchase is months down the road. To start the journey, the NFCC offers the following steps to homeownership:
Obtain your credit report – A mortgage is typically the largest amount of money a person borrows, and for the longest term. For these reasons, the lender will take a very close look at your financial history. The credit score is based on the contents of the credit report, so obtaining your credit report is the first step. Consumers are allowed one free credit report every 12 months from each of the three bureaus. Go to www.AnnualCreditReport.com to access your report, review it for discrepancies, and dispute any differences. Do this at least six months in advance of applying for the loan, thus allowing time for inaccuracies to be corrected.
Purchase your credit score – While the credit report is free of charge, there will be a small fee for buying your credit score. Don't let this stand in your way, as the score is critical to your success. You'll want the lowest rate on the loan, and even though lenders have scoring and approval standards specific to their own business models, in the current environment a FICO score of 760 should result in a good rate.
Start saving – Homebuyers may need to have 20 percent of the purchase price as a downpayment. This can be particularly difficult for a first-time homebuyer, or for someone realizing little or no equity from the sale of their current home. The larger the downpayment, the lower the loan amount, which results in a lower monthly payment. This can make a significant difference over time, thus making a concerted effort to save toward the downpayment well worth it.
Select a lender – Today's consumer has mortgage loan options that weren't available a few short years ago. While their parents may have obtained a home loan from the bank on the corner, today's borrower has the option of working with a local financial institution, an online lender, or a mortgage broker. It's usually a good idea to start with the bank or credit union you currently have a relationship with. To compare lenders and rates for your area, go to www.bankrate.com. If buying out of town, the realtor you work with can be a useful resource for local lenders.
Decide the type of loan – There are many mortgage loan products on the market, with the most common being either a fixed-rate or adjustable-rate loan. A fixed rate loan is a good option for those who intend to stay in the home for a long period of time. This type of loan adds a layer of certainty, as the rate remains the same for the life of the loan, thus making budgeting easier. An adjustable-rate mortgage typically has a lower initial interest rate that adjusts over time. Someone who anticipates being in the home for a short amount of time may find the lower rate appealing. Either way, it is critical that you make the decision that is right for your circumstances, making it even more important to select a lender you trust.
Become pre-qualified for a loan – Before beginning to shop for a house, understand how much house you can afford to buy. A good place to start is by becoming pre-qualified with your lender. This can typically be done in-person, online or by phone, and is free. You supply the lender with financial information such as income, existing debt obligations, and assets. In return, you receive a general idea of the amount of mortgage loan you qualify for. Keep in mind that there is nothing binding about the information, as it is simply a rough estimate of how much you might be approved for.
Become pre-approved for a loan – As you get closer to making a buying decision, you'll want to go through a more thorough loan process by completing the actual mortgage application and supplying detailed financial documentation to the lender. There will usually be a cost associated with this process, and a credit report will be pulled. The lender will use this information to tell you how much you can borrow, as well as the associated interest rate. However, know that pre-approval is not a formal commitment to lend, as there are many more steps before final loan approval can be confirmed.
Lock in a rate in writing – Once pre-approved, request a conditional commitment in writing for the exact loan amount and interest rate. Final approval could take longer in this current market environment, so extend the lock to a reasonable future date, one that allows you time to find a home, negotiate a price, and secure funding.
"The home buying process can be both fun and grueling," continued Cunningham. "This is indeed a case where knowledge is power, as making a mistake could result in serious long-term financial misfortune."
If you need help evaluating if now is the right time for you to buy a home, consider reaching out to a Certified Housing Counselor at an NFCC Member Agency. To find the location closest to you, dial (800) 388-2227, or go online to www.DebtAdvice.org. For assistance in Spanish, call (800) 682-9832.
The actual results of the poll were as follows:
When my financial situation improves, I'm most anxious to