Financial Facts: Planning for a home purchase
special to the daily
Buying a home is the single largest investment many people make in their lifetime. So, you would think that such an investment would take years of planning, saving and making sure that everything goes forward in your favor – not true. Many home buyers get into the buying mode and have taken absolutely no steps to plan for the purchase except that they want a new home. Here are some simple steps for first-time homebuyers and all others who plan to buy a home and need a mortgage.
1. Save. It sounds simple but for many it is not. Set up a “Christmas Club” deposit each and every pay period. If you do not see the cash deposited in your checking account you will most likely not spend it.
2. Establish good credit. Credit scores are a major factor in the type of mortgage that will be available to you and the interest rate you will receive on that mortgage. If you do not have a credit history with a credit card, car loan or student loan, get one credit card. Charge a tank of gas or cup of designer coffee. Once the bill is received pay the entire bill in full immediately. Do this every other month for a couple of months. Then get a second credit card and do the same thing. By using the card and paying it off each month you will have established a history of having credit and being responsible by paying off the debt.
3. Establish a retirement account thru your employer. This does two things: One is saving for retirement, and two, you are setting up a cash reserve that mortgage investors want to see. As an example, say you do buy a home and to celebrate you go out on the mountain and by accident break your leg and are off work for a couple of months. You need a reserve of cash to pay the mortgage while you are recuperating, and the retirement account can be that reserve.
4. Do not job hop. Mortgage investors like to see a stable history of working for one or two employers over the past couple years is a definite plus. If you work construction the job hopping is a bit more difficult, this is where we look to document that you have no large lapses in employment from job to job and that you have worked in the same line of work, such as framing or plumbing, over the past couple of years.
5. Save your bank and retirement statements, your pay stubs too. I have to document your income with actual paper copies. I always want to see the past two years of your Federal taxes too. So take an old beer box and put your papers in that box. It really does not take up that much space.
6. Finally, meet with the mortgage professional early on. I suggest that you are not too premature to meet with them a year in advance. That way you can see if you have credit, and see if you have good or bad credit. You can learn what papers need to be saved and how to use the assets of relatives to qualify for a mortgage.
So plan ahead and you can make the process of buying a home and obtaining a mortgage an easy process.
Bob Kieber can be reached at (970) 262-1199 or at firstname.lastname@example.org. He is a local mortgage lender and principal of Resort Lending.
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