Are you keen to buy your first home before mortgage rates start to rise? If so, you're not alone. According to Fannie Mae's April 2015 National Housing Survey, 63 percent of Americans would prefer to buy their own home were they to move now. And most expect average home prices to rise in the coming year. Meanwhile, the Mortgage Bankers Association forecasts that 30-year fixed-rate home loan rates are going to average 5.0 percent in 2015, way up on the sub-4.0 percent level where they are at the time of this writing.
Most people experience anxiety and nervousness, as well as excitement when they're going through the buying process. That's normal. But you may be able to calm your nerves if you follow these five tips.
1. Get a Grip on Your Credit
People with good or great credit scores can borrow more cheaply than others. And when you're taking on a big loan over a long period that can make an enormous difference to the total amount of interest you're going to pay. Having a high score also increases your chances of getting approved for the loan you want. So take control of your score, starting now. Here are the key steps you can take:
- Sign up for a service that allows you to actively monitor your score. LendingTree has a totally free one. That way you can guard against it falling while watching your good behavior push it upward.
- Pay all your bills on time. If you're behind on any accounts, get current now so your score has time to recover a bit before you make an application.
- Make sure all the balances on your plastic are no more than 30 percent of your credit limits. That applies to each individual card, and the aggregate balances compared to your combined limits.
- Don't try to open any new accounts in the months running up to your applying for your mortgage.
2. Get Out Your Calculator
It's important to be realistic about the home you can afford. The fact that a lender offers you a certain amount doesn't mean you should borrow it all.
Instead, get out your calculator (a spreadsheet's usually easier) and work out how much in monthly mortgage payments you can comfortably afford. Unless you already have a budget, detailing your income and expenditure, it's likely to take you a few hours to build one. But that time will be well spent if it saves you from years of financial stress.
Some financial experts recommend limiting your housing costs to 28 percent of your pre-tax income. But that's just a guide, and some may prefer to go over or under that. Check out this housing affordability calculator to see what level might suit you.
3. Get Realistic
Although home loan payments may be the biggest single cost of home ownership, they're far from the only ones. This mortgage calculator can give you some idea of how much others (property taxes, home insurance premiums, homeowners' association fees, and mortgage insurance premiums) might add each month.
Unfortunately, that's not the end of it. Some reckon you should allow 1 or 2 percent of the property's purchase price each year for routine maintenance and servicing (of your central air, or boiler, and so on), and exceptional repairs. Of course, those costs are likely to be much less for the first few years after you buy a newly built home or one that's been unusually well maintained.
4. Get Online
A difference of just a few basis points on a home-loan rate can save or cost you many thousands of dollars over the lifetime of a home loan. And yet it's amazing how many first-time (and experienced) home buyers don't bother to comparison shop for their borrowing, preferring instead to go with their own bank, or mom and dad's broker friend. By all means ask them too, but check online that you're getting the best possible deal.
Remember to compare annual percentage rates (APRs) as well as interest rates. Some lenders that offer low rates charge high fees, and an APR should indicate the total cost of the loan.
At the same time, make sure you're getting the type of borrowing that suits you best. If you're a veteran, a VA loan is highly likely to be your best choice.
5. Get Saving
As a general rule, the bigger the down payment you make, the better the rate you're likely to be offered. And, unless you find an unusually hot deal, you're also going to have to find closing costs to cover a host of fees before you move in. So you're going to want your savings to be as high as you can manage.
By now you may be thinking, "Gosh! Is home ownership worth it? Maybe I should think of remaining a renter." But don't be defeatist. Getting onto the housing ladder may be tough, but once you're on the first rung, climbing generally gets easier. Millions and millions of Americans are happy to be -- and live comfortable lives as -- home owners. Chances are, after some initial financial sacrifices and sensible decision making, you could join them.