September 25, 2018
Buying a new home is a process. Do you need an FHA mortgage to purchase the home you’ve been looking for? There are five things you can start doing now without financially obligating yourself to purchase; these steps will definitely help you get ready for your new home.
#5: Determine How Much Loan You Can Afford Before You Apply For Your FHA Mortgage
Figuring out how much home loan you can afford isn’t just about how much you can afford NOW, but also down the road in light of future pay raises, upward mobility at work, changes in salary or bonuses, etc. The debt to income ratio you have at the moment may be lower six months into the future-it’s a very good idea to look ahead when planning for your new home loan.
Figuring out how to calculate basic loan amounts (estimates only) and monthly payments (estimates only) can be as easy as using an online mortgage calculator. The figures you get from these calculations can be used as a rough guide to determine how you should handle your finances going forward.
#4: Is The Amount Of Mortgage You Can Afford Compatible With House Prices In Your Selected Housing Market?
If you can afford a monthly mortgage payment that doesn’t quite match the house prices in the market you’re exploring, you have some decisions to make either to look in a less expensive market or to make other arrangements to be able to afford the loan.
That could mean applying with a co-borrower who will share the mortgage payment obligation with you on your new FHA mortgage, or it could mean working on debt ratios and lowering the amount of outgoing payments you make versus the amount of cash you have coming in each month.
It’s a good idea to consider purchasing a home you can grow into, rather than grow out of; personal finances will dictate quite a bit about your ability to do this but if possible it is best to think long-term about your FHA home loan purchase and make choices assuming you may be in the home in the mid-to-long term.
#3: Start Exploring The Costs Of A Mortgage Loan
Compare FHA loan down payment requirements to other types of home loans, ask about the appraisal and home inspection costs in your chosen housing market, and be sure to save up money for expenses you may need such as pest control, flood or other hazard insurance, etc. The amount of planning and saving time for your FHA mortgage loan may be determined by how much you need to save up to make these payments.
Remember that not all closing costs may be financed and even with help from the seller and down payment assistance from approved sources you may still need to meet some out-of-pocket expenses. Knowing what these are and saving for them in advance helps you be as prepared as you can be for the application itself.
#2: Don’t Close Your Credit Card Accounts, But Do Pay Them Down
Your credit scores can be (depending on circumstances) negatively affected by closing credit card accounts. The age of your credit is a factor in your credit scores alongside the amount of credit you use. You may need to reduce the amount of your credit card balances if you carry too high a percentage of the balance each month. Resist the temptation to close your accounts, but pay them down so that your balances are not even close to the maximum.
#1: Decide What Kind Of Home Loan You Need
That may seem to be a no-brainer to some, but if your participating FHA lender doesn’t offer condo loans, or is putting more emphasis on construction loans or certain types of mortgages, you may need extra time in the loan planning stages to find a lender willing to work with you for the type of home loan you need.
Some borrowers want to buy a fixer-upper using an FHA 203(k) Rehabilitation Loan, which is much different than an FHA mortgage for existing construction. Borrowers who want a home built for them according to their specifications will need an FHA One-Time Close construction loan (also known as an FHA Construction-To-Permanent mortgage) and the process for this type of mortgage is also different and may require additional time.
Knowing the kind of loan you need, the time frames it may take to get that loan approved and have you moving into your new house will go a long way toward helping you make the most informed choices possible.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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