3 Ways to Succeed When Financing a New Home

At some point in most people’s lives, they want a home of their own. It may happen when a couple has kids or when you retire.

Of course, buying a home is a monumental financial affair. For most people, it’s the single biggest expense of their entire lives.

That also means that most people need some help financing a new home. So, what can you do that will improve your chances of success when you go for financing?

Get Your Down Payment Squared Away

Virtually all traditional mortgage and mortgage programs require a down payment. As a general rule, assume you’ll need around 20% of the total home cost. If you qualify for a mortgage program through the FHA, that number can come in around 3.5%.

Squaring away your down payment takes a couple of steps.

First, decide what kind of home you need. That means things like total square footage, number and kind of rooms, and neighborhood. You can use that information to find out what homes like that cost in your preferred neighborhood.

You can use recent home sale prices to estimate your total down payment. Once you know that, you can start setting aside a little each month toward that down payment.

Work on Your Credit Score

Your credit score plays a huge role in what kind of percentage rate you’ll pay on your home loan. That means that the better your credit score looks when you apply, the better deal you’ll get.

Some of the things that will improve your overall score include:

• Paying bills on time
• Maintaining a good debt-to-income ratio
• Resolving any old collections on your credit report

Taking these kinds of actions has a positive effect on your credit score. You should know that it can take time for your score to improve.

Consider a Smaller Home

Sometimes, your dreams can outstrip your finances. You may discover that your dream home will simply cost too much. Maybe the interest rate will prove too high or your payments unmanageable.

In cases like this, consider a smaller home that costs less. You can consider the home an investment toward getting your dream home.

You can keep the smaller home for a while and make improvements that raise the value. That positions you to build your credit score and sell the current house for a profit down the road. It also gives you time to get a better job that makes your dream home affordable.

Parting Thoughts on Financing a New Home

Financing a new home is often a protracted process. It starts long before you even think about applying with a bank.

You need a clear picture of what you want in a home and where you want it. That determines what kind of price tag you’ll face.

You’ll want the best credit score possible ahead of time. That can mean a couple of years of dedication to good financial management. In the end, you might need an interim home that simply costs less.

Curious what kind of interest you’ll pay? Check out our articles on mortgage rates to keep up to date.

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