by Laura Kocum
on Tuesday, February 24th, 2015 at 4:34am.
You don’t want to find your perfect home, and then realize you can’t afford it. Likewise, you don’t want to underestimate what you can afford, and limit yourself to less than your dream. The first step to starting a real estate search is to talk with a lender.
There was a time when a buyer needed 20% down to consider purchasing a home. Today, the market has changed, and the rules for qualifying have too. Buyers are finding they can afford more home than originally expected, or that qualifying is possible, even without a sizable down payment. A variety of options exist to allow buyers to purchase with as little as 3% or possibly even 0% down. Between gifted down payments, reductions in closing costs, or seller-assisted closing costs, there are many creative ways to make home ownership a reality.
A good lender will help you identify what you can afford, right away, and remove any confusion about the process. They’ll identify your buying potential, interest rates, and they can provide a good faith estimate of closing costs. Chris Venden, buyer’s agent at Mad City Dream Homes, recommends buyers work with local Madison lenders like Karen Wedvick of Johnson Bank. Working with a local lender gives you improved access to information on local markets, and creative tools to avoid delays commonly seen with out of state lenders. “I know if it’s going to be a challenging transaction, I want Karen to handle it,” she says. “Karen is good at troubleshooting, and can make things happen in a quick timeframe.”
Wedvick has access to a variety of programs to help home buyers. But with each program, credit still matters. She recommends buyers do the following before pursuing their loan:
Reduce your debt/income ratio. Lenders always look at your current debt and income. The obvious way to improve your eligibility is to pay down your debt.
Improve your credit score. Buyers can be afraid to have credit, but it is an important piece in demonstrating loan eligibility. Having access to credit, using it wisely and paying it off regularly will all boost your overall score. The key to managing credit successfully is to keep balances low. Another way to do this is to increase your credit limit, but to avoid spending any more on your accounts. By showing you manage your spending, and choose not to come near your limits, you are demonstrating to a lender that you have self-control - a key piece in the lending decisions.
Pay off any outstanding collections now. If you have a collection against you, it will hurt your credit, regardless of if it is your fault. Wedvick says it’s better to just pay the collection, get a receipt, and fight it after the fact. “Your penalty could cost you thousands of dollars because you have a $25 collection,” she says. But if you have paid it, you can still argue for a refund, all while repairing your personal credit history.
Look at what you are already paying. If you already have a mortgage on a home, you may not have an optimal interest rate. “We haven’t had rates this good in a few years,” says Wedvick. It may be time to consider refinancing. Doing this can also consolidate outside debts, remove multiple payments, and lock you in to an interest rate that is more affordable.
The key to success in the current market is to manage your money well, and to know that there are many tools available to make purchasing the home of your dreams a reality. To learn more about your home purchasing possibilities, contact Karen Wedvick at Johnson Bank: 608-203-3934, or apply online.