With low prices and low mortgage interest rates, many are interested in buying a house. However, before you buy, it is important to be truly ready to buy a home. Here are three things you can do to get ready to buy a house:
1. Review your budget
It is vital that you know how much you can afford in terms of buying a home. It is also important to make sure that your budget can handle the mortgage payment and all the costs that go with it. Many forget that property taxes, home insurance, PMI, maintenance, repairs and other costs come with home ownership. After you figure out your monthly mortgage payment (principal plus interest), add another 30% to that to account for other expenses. If your mortgage payment is $1,000, that means that you should budget at least another $300 for additional home ownership costs. Make sure that your total home ownership costs will not exceed 30% of your monthly income -- it's better if you can keep it to 25%.
2. Save up for a down payment
The bigger your down payment, the better. You will get a better mortgage rate, and borrow less money. Besides, many lenders want to see 5% to 10% down when you buy now. Some lenders are returning to the old 20% down payment rule of thumb. If you don't put 20% down, be prepared to pay Private Mortgage Insurance (PMI), which protects the lender in case of a default.
3. Improve your credit score
Your credit score is a big deal. For the best mortgage rates, you might need a 760. And few lenders are willing to accommodate a home buyer whose score is below 670. The subprime lending crash and global financial crisis have resulted in tougher standards. You can improve your credit score by reducing your debt, making on time payments and behaving in a financially responsible manner.
-- Miranda
image source: Broadwater via Wikimedia Commons