December 6, 2021
If you are considering a home loan but aren’t quite ready to commit yet, you are said to be in the planning stages of your mortgage.
That planning phase is quite important and should begin as early as possible so you have plenty of time to save money for your FHA mortgage loan down payment (a minimum of 3.5% down is required), your closing costs, and other loan expenses.
There are three basic areas you should pay attention to in the planning stages of your home loan–your savings, your debt, and your credit scores.
The credit score portion of the process is obvious–if you don’t start monitoring your credit, work actively to reduce your credit usage and get your credit card balances as far below the 50% line of your credit limit as possible? You have a much harder time qualifying for the mortgage.
That’s a fairly Home Loans 101-type advice. What’s not so obvious? Working on your credit may be easier than you realize–some find great results in arranging monthly payments so that the bill each month gets paid off before the due date, every time using automatic deductions to keep the payments consistent.
Others find that taking a more aggressive approach toward their credit card debt–paying off the smallest credit card first and working on the next one from there–helps, too. But that approach can take time–time that’s worth it to take.
And what about those credit scores? The on-time payments will help there, lowering your credit card debt also helps. But time is the third key to getting your credit ready in the planning stages in your home loan journey.
Start reviewing your credit a year or more in advance and give yourself plenty of time for the good credit habits you’re working on to take effect–they won’t affect your credit overnight, or even in the next month or two–at first. The time you invest to pay attention to your credit and spending habits will pay off by the time you finally get to your mortgage loan application.
We mentioned savings earlier–you’ll need to take time to build up your savings to pay for the closing costs of your mortgage, and the down payment issue is something to address early, too. Why?
Because if you apply for a down payment assistance program in your local area you could find your out of pocket costs going down.
But these applications take time to process and you may need that extra time in order to get properly situated with down payment funds and closing cost money.
Some of those programs are intended for first-time borrowers, but don’t make the mistake of assuming you do not qualify just because you have owned property before. Many first-time buyer down payment grants and closing cost help are offered to those who have not owned property in the last three years–treating these applicants as first-time buyers.
That can be a huge advantage, and it pays to talk to a participating FHA lender to explore these options and more.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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