Financing
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Understanding your financial health is crucial when looking to finance real estate. Here’s a guide to help you prepare for this significant step:
1. Create A Green File:
- Purpose: This file will hold all your crucial financial documents that lenders might request.
- Contents: Copies of bank account statements, investments, credit card statements, auto loan details, recent pay stubs, and tax returns from the past two years.
2. Understand Your Credit Rating:
- Credit Score Range: They typically range from 400 to 800.
- 620 and above is seen as “good.”
- 680 and above is considered “premium” and can potentially fetch you a more favorable interest rate.
- How to Check: Contact major credit reporting agencies:
- Equifax: Equifax or 800.685.1111
- Experian: Experian or 800.392.1122
- Trans Union: Trans Union or 800.888.4213
- Improving Your Score: If your score is low, consult with your lender on ways to improve it. Protect your credit standing by making prompt payments and not accruing more debt.
3. Manage Savings & Debt:
- Savings: Save for:
- Down Payment: A lump sum you’ll pay upfront.
- Closing Costs: These include fees for appraisal, escrow, title insurance, and more.
- Inspections: There might be costs for property inspections.
- Debt: Aim to reduce existing debts, especially those with high-interest rates like credit cards. This not only improves your credit score but also your debt-to-income ratio, which lenders look at closely.
4. Maintain Financial Stability:
- Career Changes: A stable employment history is favorable in the eyes of lenders. If contemplating a job change, discuss with a lender first.
- Large Purchases: Avoid making substantial expenses, especially if they incur more debt. For instance, a monthly debt of $500 could reduce your home affordability by approximately $83,000 (based on a 30-year mortgage at 6% interest).
- Moving Money: Don’t shift your money between accounts unless necessary. Lenders appreciate seeing stability and a consistent savings pattern.
Conclusion:
As you prepare to finance real estate, the main principle is to demonstrate financial stability and responsibility. Your preparation in the months leading up to your purchase can significantly impact the loan terms you receive. Proper planning can make the difference between a favorable loan and one that stretches your finances thin.