RISMEDIA, April 27, 2007-Along with the excitement of owning your own place, you may also be thinking about how to pay for what is likely the single biggest investment in your lifetime. Fortunately, there are some steps you can take to ease your mind, and save you money.
LendingTree.com provides the following tips to help boost your budget when borrowing to purchase a home:
- Create a budget: Think your house payment should equal your current rent? Think again – there are other costs associated with homeownership, like maintenance and homeowner's insurance. Also, you may qualify for a much more expensive home than you can actually afford. Start by writing down your current monthly expenses. Rent, utilities and your car payment are the biggies, but don't forget bills like car insurance and variable costs like food and clothing, entertainment and gifts. Keep your receipts, and at the end of each week tally them up. After four weeks, you'll have a good idea of how much you spend.
- Start saving for a down payment: If you haven't already, start a savings account dedicated to a down payment. Consider a high yield savings account for this purpose. A down payment of 20% or more will often earn you a break on the interest rate; a larger down payment can also lower your monthly payment. Since you've already completed your budget exercise, you know how much you could be saving each month.
- Check your credit report and score: Your credit score is the major factor lenders use when assessing your mortgage application. The higher your credit score, the better your interest rate is likely to be. For instance, a credit score of 720 or higher is considered excellent; anything below 680 is often considered higher risk. By law, you are entitled to one free credit report per year from each of the three credit bureaus (Experian, Equifax and TransUnion). Once you get a copy, the first things to look for are any errors on your report. You have the right to dispute any mistakes you find. If there are no mistakes, but you discover your credit is less-than-perfect, there are multiple ways to improve your score.
- Research your loan options: Think a 30-year fixed rate mortgage is the only way to go? The truth is there are scores of different loan options. Don't plan on being in your new house forever? Consider an adjustable rate mortgage. Bottom line: there's a mortgage out there to fit your particular situation but what's important – regardless of what mortgage you chose – is to fully understand the loan and the terms before committing to it.
- Get pre-qualified: The best way to stay within your budget and understand what you can afford for your new home is to get pre-qualified for a mortgage. Prequalification involves supplying a lender with basic information regarding your debt, income and assets. From this information, lenders can get an idea of the mortgage amount for which you qualify, and it can usually be done at no cost.
- Get to know your local housing market: Once you've done all the financial prep-work, you can finally start looking at properties. How do you know if the sales prices you see are fair and reasonable? Property tax values as well as sales price history is a matter of public record; there are several good Web sites that will show you the tax values of any address, along with sales data from other properties nearby. REALTORS® are also a valuable resource – it's their job to be experts in their local housing market so lean on them for advice and information.
- Compare mortgage lenders: There are plenty out there, from big banking institutions to smaller specialty mortgage companies. Look beyond the quoted interest rate, which could include points or other fees, when comparing. Make sure the company is well-established with a good recommendation. Comparing lenders allows you to receive multiple competitive offers and ultimately helps you save money on your mortgage.
For more information, visit www.lendingtree.com.
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