Fannie Mae Says Do These 5 Things if You Want to be a Homeowner
If the last recession has taught us anything, it’s the importance of not only owning a home but being able to afford your home through the ups and downs of an unstable economy. Fannie Mae, one of the giant government-sponsored entities that buys mortgages on the secondary market, has important guidelines for home buyers so that you not only get the right house but you can afford to stay there and avoid a future foreclosure. Below are Fannie Mae’s five steps to sustainable home ownership.
1. Get educated. The first thing you should do is to learn all you can about mortgages and bank loans so you can apply for the best loan possible. Fixed-rate mortgages, adjustable-rate mortgages, FHA and VA loans, conforming jumbo loans, hybrid loans and others each have an advantage for the right borrower. It’s up to you to educate yourself on which one to take advantage of. You also need to know what factors can make the same loan cost you more than others, from credit scores, to paying discount points to bring the interest rate down, to varying lenders’ fees.
2. Get Your Finances in Order. All FHA, VA and other government guaranteed loans that are sold to the secondary market to Fannie Mae and Freddie Mac are enforcing stricter guidelines. Before you choose a home to buy make sure you can qualify to buy it. You need to get a copy of your credit report that includes your credit score. If your credit score is low (below 620), do your best to improve it before trying to qualify for a loan. If you find errors on the report, take the time to correct them.
3. Establish a Budget. When you apply for a loan, your lender will tell you how much you can afford based on your income and income-to-debt-ratios. To buy smarter and safer, your mortgage payments should not be greater than 28 to 33 percent of your total monthly gross income. If you have student loans, car payments, child support payments, or credit card debt, your debts plus your mortgage should not exceed 36 to 40 percent of your total monthly gross income. Create a practice budget based on what your mortgage and insurance will be, make sure to give yourself a cushion so you aren’t just able to make your monthly payments but save money too.
4. Start Saving. Depending on the type of loan you think you’ll qualify for, you should have more than enough cash on hand to make your down payment and closing costs. Some down payments can be 20% plus, make sure you account for that liquid cash expense.
5. Get pre-approved. Once your lender has pulled your credit report and matched your income and debt ratios to various loan programs to see where you qualify best you should receive a pre-approval for a loan amount. That amount will be the maximum loan you can receive for the purchase of a house. Technically a pre-approval letter doesn’t mean you will get a loan because you can’t apply for a loan until you have the address of the home you wish to buy. Once the loan is approved by an underwriter you can move forward with the purchase and enjoy your new home for many years to come.