Everywhere you look online these days you're seeing advice and ideas for New Year's resolutions – topping the lists are getting fit, getting organized and spending less/saving more. If you're thinking about buying a home in 2016, we hope that you'll add these six resolutions to your list:
Get your financial house in order. And that starts with credit. Good credit is key to getting a mortgage at a reasonable interest rate but it takes discipline and planning. If it's been more than a year since you checked it, find out what your credit score is. You can improve your credit by paying your bills on time, working with a no-fees housing counselor and beefing up your credit literacy. If you don't have credit, work to establish it independently by opening up checking/savings accounts and using credit cards carefully.
Figure out how much you can afford. One of the first steps in the homebuying process is getting a handle on your finances. While it's not nearly as fun as shopping for homes, it's important to help you understand how much you can afford. What do you earn? What do you spend? How much do you have in savings? Answering these questions will help you learn whether you are financially ready for homeownership. Make a budget and use free online tools and calculators to determine how much you can afford and the amount you have for a down payment. A good rule of thumb is that your mortgage payment (principal, interest and mortgage insurance) should be less than 28 percent of your monthly gross income.
Get the facts on down payments. As I wrote about in this blog last year, down payments are one of the biggest misconceptions in the market today. Don't assume you don't have enough for a down payment or won't qualify for a mortgage without 20 percent down. In fact, about 40 percent of today's homebuyers are making down payments that are less than 10 percent. At Freddie Mac, 23 percent of the loans we funded in the first nine months of 2015 were to borrowers putting less than 20 percent down.
Find out if you're eligible for any local or state down payment assistance programs – a recent study found that 87 percent of U.S. homes would qualify for down payment help. Remember, some options may be as low as 3 percent – like Freddie Mac's Home Possible Advantage® mortgage. But keep in mind that if you're not putting at least 20 percent down, you'll pay extra each month for mortgage insurance. Contact several mortgage lenders to shop around and find the best deal.
Explore your mortgage options. Mortgages are not one size fits all. It's important to choose the right mortgage for your situation. The type of mortgage that you select may make a big difference in your monthly payments and the overall cost of your loan. While most borrowers today are financing their homes with fixed-rate mortgages, for those who plan on living in their home for less than five or seven years or those who can withstand payment fluctuations, an adjustable-rate mortgage may make more sense.
Get pre-approved for financing. It's highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.
Rely on professionals. The typical homebuyer will look at 10 homes over a 10-week period so finding and working with the right team is critical. Housing counselors, realtors and lenders all play an important role in the homebuying process. These professionals have the expertise to advise you every step of the way.
Acting on these resolutions can help you build the savings and financial savvy to make your dream of homeownership possible sooner than you may realize. Because Freddie Mac is working to keep its own resolutions to expand homeownership responsibly, we have low down payment mortgage options and we are working with America's lenders and community leaders to create better ways for making home possible for America's families in 2016 and beyond.
Happy holidays and house hunting!
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