When temperatures drop, it can be hard to think about anything other than staying warm. But if you've got a snow day, take a few hours to get your financial life in order. Answer these five questions and you'll be ready to make major decisions by the time the spring thaw comes.
Are you ready for homeownership? The decision to rent or buy is a personal one that depends on your financial situation, future plans and lifestyle. Buying may make sense if you plan to stay in your home for at least five to seven years and you're interested in building long–term equity. My Home by Freddie Mac® provides a wealth of information to help you get started.
How's your credit? A decent credit score is important whether you're renting or buying. Landlords and lenders look at your credit score to decide whether you're likely to pay on time. Generally, the better your score, the lower your mortgage interest rate is likely to be. That means a good credit score saves you money in the long run.
If your score isn't as good as you'd like it to be, you can improve it by paying your bills on time, especially car payments and credit cards. If you want to make even more headway, start paying down your long–term debts. If it's possible, put any extra cash toward the debts with the highest interest rates first.
What if you don't have a credit score? Don’t worry. Lenders we work with have access to technology that can assess people without credit scores if they have payment references like records showing on-time housing payments.
How much can you afford? Fully understanding your finances is critical. It will not only help you determine your price limit, but it will also help you understand if your budget can cover a major repair such as a new roof or furnace if you choose to buy.
Do you have enough saved for a security deposit or down payment? If you've decided to rent, you'll probably need to put down a security deposit and pay one or two months of rent up front. That's a total of four months of rent in advance.
If you're looking to buy a home, you'll need a down payment. Ignore anyone who tells you that you must put down 20%. Most homebuyers put down between five and 10%. And some products, such as Freddie Mac's Home Possible Advantage® mortgage, allow a down payment as low as three% of the purchase price.
After considering your answers to these questions, are you ready to buy a home? If so, the first step is to research lenders and find one that you're comfortable with. Then, before you begin house hunting, it's a good idea to get pre–approved for a mortgage. This will allow you to negotiate with confidence – and close the deal faster so you can make your dream of homeownership a reality.