You’ve likely been spending more time at the place you call home lately. If this has you thinking about buying your first house or purchasing a different home to better suit your needs, here are some tips as you prepare to make the purchase.
Build your savings: Set money aside every month. Prior to purchasing a home, the saved funds will go toward your down payment, closing costs, and future home-related expenses. Having a few months of mortgage payments saved up will show your lender you aren’t living paycheck to paycheck. Once the home is purchased, continue to save monthly for mortgage payments as well as maintenance issues that are bound to come up. Some home improvements can wait, but others need to be taken care of immediately, so you need to be prepared.
Improve your credit score: The higher your credit score, the lower your monthly payment. Lower scores may mean you’ll have to pay significant fees or make a higher down payment in order to be approved for a mortgage.
In order to improve or maintain a credit score, avoid opening or closing any new credit cards for about a year prior to purchasing through the time you’ve closed on the home. Since individuals are entitled to one free credit score per year, take advantage of it.
“Pull your credit report at annualcreditreport.com to ensure you aren’t being unfairly penalized for old or settled debts,” suggests Miria Gray, Community Education Officer at Chelsea Groton Bank. “Sometimes, you may even realize you’ve been falsely charged for something, like an old cable or phone bill. Now is the time to find out, and reconcile the situation, before your credit is run by a mortgage lender.”
Be realistic about what you can afford: Mortgage lenders calculate affordability based on your personal financial information, including savings, income, monthly debt payments and the size of the down payment.
Lenders look at potential buyers’ debt-to-income ratio, which is how much the potential buyers earn each month, versus how much they spend on expenses like rent or current mortgage, utilities, student loans, auto loans, minimum credit card payments, and child support.
Think outside the box: You don’t always need a perfect credit score or a 20 percent down payment to qualify for a mortgage. If you don’t have these things, it doesn’t necessarily mean you need to delay buying your first house.
“We partner with a number of agencies to provide affordable loan options to members of our community,” shared Matt Morrell, VP, Retail Lending Sales Manager at Chelsea Groton Bank. “Federal Housing Administration-insured mortgages have low down payments, and Connecticut Housing Finance Authority (CHFA) provides a variety of loan options with below-market or competitive interest rates for first-time homebuyers including a Down Payment Assistance Program (DAP). There are also low down payment and down payment assistance programs that you might qualify for based on your occupation, such as Chelsea Groton’s Community Heroes Homeownership Program or a Veteran’s Administration (VA) loan. Other available programs are based on income, such as FHLB Equity Builder or HDF SmartMove.”
Preparation is key: The key is to have all your finances in place. Many lenders, including Chelsea Groton Bank, offer homebuyer or financial seminars for no charge. In March and April, the Bank is guiding prospective homebuyers through the process during the following sessions:
- Tuesday, March 24, 1:00-2:00 PM through Interactive Webinar
- Monday, April 20, 6:00-7:30 PM at New London High School
- Tuesday, April 21, 5:00-6:00 PM at Chelsea Groton Bank’s Center Groton Branch
- Tuesday, April 28, 6:00-7:30 PM at Waterford High School
Take the time to meet with a lender and find out what you would be approved to purchase, and what you feel comfortable spending (since it could be less). Realtors prefer to work with people who have been pre-approved and know the price range of homes they can afford.
Try to make a purchase that will serve you and your family’s needs for at least the next handful of years. The time, energy and money it takes to relocate are not small, so it’s important to select a home that you’ll feel good about for many years to come.
Thanks to technology and an ongoing commitment to serve our community, Chelsea Groton’s Mortgage Team is ready to answer questions, and assist you with any of your home loan needs, just as we always have. Please call 860-448-4174 to speak with our team.