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Preparing for a home purchase
Buying a new home can be a complicated process and everyone’s situation is different. However, the following eight steps provide some information you need to get started on the right track. A mortgage loan originator is a great source to help you navigate the process, they can also be a great resource to guide you to other professionals that you might need to work with.
Confirm your credit score
Lenders use credit scores to measure a borrower’s credit worthiness. A good payment history is a strong indicator that the loan applicant will make the mortgage payments on time. As soon as you start to consider a purchase, you should check your credit report and verify there are no errors.
Start building better credit
Credit scores range from 300-850, and higher scores are better. Your score affects the type of loan you can receive as well as the interest rate you will pay. There are many ways to build and improve your credit, the most common technique is to open, utilize and make timely payments on a credit card.
Buy or rent?
Some people may prefer to rent while they save their money for a larger down payment that will lower the monthly mortgage payment. However, homeownership may provide many benefits including building equity and providing a tax deduction based on interest paid.
Monitor the market
Before you ask a real estate agent for help seeing properties, it’s a good idea to make a list of features for your preferred neighborhood type. Once you’ve narrowed down your search, you can set up listing alerts on websites, such as Zillow and Trulia to monitor the market.
Set your ceiling
Potential homebuyers need to ask themselves, “How much home can I afford based on my available resources?” A good rule of thumb is to spend no more than 1/3 of your gross monthly income on monthly mortgage payments. Acceptable sources of income include documented salary, commissions, bonuses, alimony, child support, pension, social security, interest and dividends.
Build or buy?
Buyers should consider that not all homes on the market are move-in ready. Some homes may need remodeling to make it into the living space you prefer. Another option to consider is buying a lot or piece of land and building your dream home to your exact preferences and specifications. The choice is yours!
Sellers may request prospective buyers to present pre-approval with an offer. Pre-approval is for a specific loan amount based on a number of factors including credit score, income, debt, employment history, private mortgage insurance and current mortgage rates. Having pre-approval increases the likelihood that a buyer will obtain a final loan approval. But keep in mind that pre-approval is temporary (it typically lasts for 90 days), so it’s a good idea to start saving even before you get pre-approved.
A larger down payment reduces the amount of the mortgage loan, which saves you money on the principal, interest and private mortgage insurance payments. In fact, if the down payment is at least 20 percent of the purchase price, you may be able to eliminate mortgage insurance, which will save you even more money. Curious what your monthly payment would be? You can use this mortgage payment calculator to estimate your monthly mortgage payments.
One of the biggest financial decisions most people make during their life is the purchase of a home. It makes sense to plan ahead, do your research and explore all your options with a mortgage loan originator.
Investment products and services are:
Not a Deposit ● Not FDIC Insured ● May Lose Value ● Not Bank Guaranteed ● Not Insured by any Federal Government Agency
Equal Housing Lender
For U.S. Bank:
Mortgage and home equity products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.
Credit products are offered by U.S. Bank National Association and subject to normal credit approval.
U.S. Bank is not responsible for and does not guarantee the products, services or performance of U.S. Bancorp Investments.
U.S. Bank, U.S. Bancorp Investments and their representatives do not provide tax or legal advice. Each individual's tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.
For U.S. Bancorp Investments:
Investment products and services are available through U.S. Bancorp Investments, the marketing name for U.S. Bancorp Investments, Inc., member FINRA and SIPC, an investment adviser and a brokerage subsidiary of U.S. Bancorp and affiliate of U.S. Bank.
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