6 Financial C’s of home buying

Published November 5, 2012 by Julie Provenzano

Thinking about purchasing a home?  Consider these 6 Financial C’s of home buying

Credit

Know your score.  In the past, lenders were willing to assume more risk and loan money to a individual with less than stellar credit.  A credit score of around 640 was usually enough to secure a loan.  Not anymore.  Across the board, lenders are raising the floor on credit scores, with many not even willing to consider a score below 720.  If you’re thinking of purchasing a home, check your credit score first.  If it falls below that 720 benchmark, spend your time strengthening your score, not searching for a home.

The major three credit bureaus are Equifax, Experian and TransUnion.  It may be wise to know your score before you even begin your home search.

Commitment

Do you plan on staying in your home for at least 3 years or more?  If relocation is a strong possibility, consider putting your eggs in the rental basket and hold off on buying a home.  Market values continue to fluctuate and you may find yourself in the hole should you need to sell in the short term.

Calculators

Online financial calculators abound.  Getting a rough estimate of how much home you can afford can be beneficial should you decide to move forward.  Just remember, these tools are designed to appeal to the masses and rarely take into consideration an individual’s debt to income ratio, credit history and personal comfort level.  However, they can be useful tools in getting a rough idea of how much you may be able to borrow and your monthly principal and interest.

Counseling

Your home is likely the most expensive thing you will ever buy.  Having reliable and knowledgeable professionals in your corner throughout the process will not only help bring peace of mind, it will help ensure your money is well spent.  First, find a reputable real estate agent who will help guide the decision making process to your best advantage.  A good agent will also have a network of other professionals such as lenders, closing agents and inspectors that will help everything run more smoothly.  Buying a home is a team effort- build yours wisely.

Choices

Not only is choosing a good agent a must for home buying success, choosing the right home, in the right neighborhood is essential both for peace of mind and resale value.  Searching for your dream home is often an exciting and emotional process.  However, try your best not to fall head over heels for any one particular home.  There are many pieces that must fall into place in order for a deal to close.  Treating the purchase of your home as a business transaction and not a love affair will help keep things in perspective and give you more bargaining power over things like purchase price and other stipulations.  Deciding beforehand how far you are willing to go in the negotiation process is a good idea if you wish to maximize your dollars spent.

Cash

Prior to 2008 lenders were willing to offer loans to buyers with less cash on hand to put toward a down payment.  Adjustable rate mortgages, balloon loans and loans requiring zero down payment were relatively common.  However, in recent years lenders have tightened the restrictions on the amount of cash a purchaser must have in order to secure a standard 30 or 15 year mortgage.  In 2012 it is not uncommon for lenders to require a 20% down payment.  You may be able to get a loan with less money down, but be prepared to pay PMI- primary mortgage insurance- insurance that protects a lender should a buyer default on the loan.  If you do not have at least a 20% down payment it may be wise to shop for a less expensive home or continue renting until you are able to grow your nest egg.

Purchasing a home is often a person’s most significant financial undertaking.  It is essential to carefully consider all options and cover all the bases before making the leap into home ownership.

Taking the financial leap