by Danny Rodgers
(San Diego, California, USA)
Buying a home is not something most people do often. In fact, many only go through the process once in their entire lives. There are literally thousands of factors which can make the difference between a pleasant home buying process and a nightmare lasting several months.
Most of the problems occur during the process of getting a mortgage to finance the purchase. Yet just a little preparation goes a long way towards getting a great deal when you borrow the money to buy a home.
There are two main areas of concern when it comes to getting the best terms on your mortgage – your credit and your down payment.
The first is your credit. Before you ever talk to the first person about buying a home, you need to get a look at your credit report and make sure everything is okay. Surprisingly, most people have no idea what is on their credit report. Yet there are errors on the credit reports of almost two thirds of the people who hope to buy a home.
Because so many errors and abuses occur in the credit reporting process, the government has stepped in and required the majorcredit reporting bureaus to provide a copy of each person’s credit report for free once every year. The credit bureaus have set up a website at AnnualCreditReport.com to make it convenient for everyone to get their credit report online.
Don’t confuse this website with many of the commercial sites which will ask you to pay for your credit report. Note that you must be familiar with at least some of the items on your credit report because you will be asked about them randomly to help make sure only you are able to pull your credit report from the site.
Once you have a copy of your credit report, double check it for errors. Chances are that you will find several. When you use the website, the process of challenging these errors is very easy. You don’t have to write letters or make phone calls to get the process started.
All you have to do is click on the incorrect items and fill out the form that pops up. Start this process early so that you have plenty of time to get errors corrected. Small errors on your credit report can create very lengthy delays in the home buying process if you don’t take care of them ahead of time.
The second primary area of concern is your down payment. Every extra 5% of the purchase price you can pay down at your closing will make a huge difference in your financing. The ideal situation would be to have at least 20% of the purchase price available.
Having 20% to pay down will help you avoid being required to pay formortgage insurance to guarantee the lender that your lender will be paid off if you default on your loan. When mortgage insurance is required, getting approved for a mortgage is MUCH more difficult and the cost of the mortgage insurance means you can’t afford to pay as much for the home.
Mortgage underwriting guidelines get more difficult all the time. However, if you take care of your credit and save up a substantial down payment then 90% of the potential problems are eliminated before you start the process.