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For example,
Combs says some local governments will offer interest rate or
down payment subsidies to buyers who agree to buy a home in
certain areas. And governments or employers may subsidize
teachers, fire fighters, police officers, nurses and other
service professionals who have difficulty affording a home in
high-priced communities. A hospital trying to recruit and
retain nurses, for example, might offer a down payment loan,
which is forgiven and turned into a grant if that nurse
remains employed with the hospital for several years, says
Combs.
Before you
begin your house hunting, there are three important steps to
take to make sure you are eligible for the best interest rates
and to make the mortgage application process a
breeze.
1. Get your credit in
shape: Order your credit
reports
One of the first steps any prospective buyer
should take is to take advantage of the free credit reports
everyone is entitled to request annually, thanks to federal
law. While there are many sites on the Web offering "free"
credit reports, many of those offers require that you sign up
for a free trial of a credit-monitoring service that will cost
money if you fail to cancel during the free trial period. The
official site where you can get free, no-strings-attached
credit reports annually from the Equifax, Experian and
TransUnion credit bureaus is http://rs6.net/tn.jsp?t=jem5y5bab.0.0.jaqsw7bab.0&ts=S0242&p=http%3A%2F%2Fwww.annualcreditreport.com%2F&id=preview.
You can receive one free credit report from each of these
three agencies every year.
David Reed, an
Austin,
Texas, mortgage banker and
author of "Mortgage Confidential: What You Need to Know That
Your Lender Won't Tell You," says you should review each of
those reports for errors. There could be mistaken entries
noting late payments or account information that belongs to
someone else. Common names sometimes get mixed up on credit
reports, as do "Juniors" and "Seniors" in the same family.
"I see that a
lot," says Reed.
If you spot an
error, you should write to that specific creditor and request
a correction. Bankrate has a work sheet to help you request and track corrections on each of
your credit reports.
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Getting Ready to Buy a
Home
How's your
credit?
While paying down your
credit card balances will improve your financial
picture, this is not the time to close credit accounts
because reducing the amount of credit available to you
can actually lower your credit score.
"Don't assume you should just
get rid of it," says Combs.
If you already own a home and
have an existing home equity line of credit, or HELOC,
Combs recommends that you not get rid of it in
preparation for a new home purchase. "I think you ought
to leave it alone. Sometimes buyers are going to need
it; they can use it as an easy bridge loan (to cover the
down payment temporarily until you sell the old home) so
they don't have to go through the trouble of getting
one."
2.
Organize your financial
paperwork:
You also should gather up
all the financial documents that a lender will need when
you submit an application. They include copies of your
income tax returns, W-2 wage statements, paycheck stubs,
bank and investment account statements, divorce decrees
and child support documents and recent credit card
statements. Having those documents handy will also help
you put together a realistic budget and help you figure
out what you really can afford to pay as a down payment
and toward subsequent monthly payments for mortgage
principal and interest, plus property taxes and
insurance.
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Documents to
gather: |
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Tax
returns for the past two
years. |
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W-2
income
statements. |
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Two
most recent pay
stubs. |
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Most
recent credit-card
statements. |
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Most
recent bank and investment account
statements. |
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Divorce decrees and
child support
documents. |
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Your
budget.
3.
Craft a
budget:
How much house can you
afford?
There is a
difference between the maximum payment a
borrower can qualify for -- which can sometimes
be surprisingly high -- and the amount you can
comfortably afford, says Combs.
"Each person has to
know the difference in his own mind," she says.
"If you're just getting by with your current
rent payment, and the lender says you can
qualify for more, give it some thought."
However, first-time
buyers, in particular, often don't know how the
tax-deductibility of mortgage interest and
property taxes can help offset a mortgage
payment that is higher than their rent. A good
real estate agent can help you figure out the
bottom line.
Keep it
steady
Once you're
closing in on your purchase, and especially
after you've applied for a mortgage, do your
best not to change your financial picture. "When
you sit at the closing table, you will be asked
to sign a document that says your credit is the
same as it was when you originally applied for
the loan," says Combs.
If at all possible,
put off job changes. Lenders like to see a
steady history of employment and frown on job
changes while your application is pending,
unless the new job is in the same field and at
the same or greater pay.
Elizabeth Razzi is a
freelance personal finance reporter and author
of "The Fearless Home seller." She is based in
the Washington,
D.C.,
area. |
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