Wednesday, September 14, 2011

Preparing to Buy a House

The home ownership rate in the United States was 66.9 % for 2010, according to the Housing Vacancy Survey conducted by the US Census Bureau. Having a plan to buy your own home can give you a clearer view on what to accomplish in the actual time of buying. 

Here is a step-by-step guide to preparing to buy a house.

1.       Strengthen your credit score. Credit score is a three-digit number which can determine if you can buy things and how much they will cost you. The three-digit numbers serve as the summary of how you’ve paid your bills, how much open credit you have, and everything that would affect your creditworthiness. Fair Isaac and Company (FICO) pioneered this type of scoring.

Credit scoring is classified as either good or bad.  Good credit ratings can be earned when you borrow money and pay it back on time for the full amount consistently. On the other hand, bad credit ratings are quite easy to get. It happens when a person doesn’t pay back the money that he borrowed on time, or when he doesn’t pay it at all. There are several agencies that can provide credit score such as Fair Isaac Corporation, Equifax’s ScorePower, Experian’s PLUS score and TransUnion’s credit score. Credit score is a factor that lenders usually check to predict how likely you are to repay a loan and make payments accurately. Moreover, it reflects how much you pay for insurance, credit, and other necessities that used to be concealed from consumers. There are several ways to get your credit report. 

a)      You can go to the credit report website to access your annual credit report online
b)      You can call a toll free number
c)       You can accomplish the form on the brochure about Annual Credit Report Request.
d)      You can go directly to a credit reporting agencies and ask an officer about your credit report.

Consequently, strengthening your credit score isn’t difficult to do. Zigas says, “Pulling up your credit reports and ensuring you’re not being unfairly penalized for old, paid or settled debts”. In addition, Ulzheimer says, “Stop applying for new credit a year before you apply for financing, and keep the moratorium in place until after you close on your home”. Your credit score may be inaccurate and you might be denied a loan if you don’t get the report and verify it.

2.       Determine how much house you can afford.  Before buying a new house, there are different measurements that would help you in choosing an affordable one. Make sure that the monthly payment would not exceed your gross monthly income with a big percentage.  For instance, almost one-fifth of buyers get Federal Housing Administration (FHA)-insured loans. With FHA financing, your home payment should not exceed 31 percent of your monthly income. By knowing how much house you can afford, you will save yourself a lot of time and money.  There are several factors that determine the amount of house you can afford.

a)      Your annual income
b)      The amount of cash you have for a down payment
c)       Other mortgage related costs
d)      Mortgage interest rate and terms available at the time you make the purchase

                   Naturally, you can borrow more money for the same monthly payment while the interest rates are lower.  Indeed, it is important to know the interest rate, points, term of loan and down payment in advance.  For example, a family in Texas that brings $3,215 a month purchased a median home that has a price of around $200,000. Here, the family will pay 5% down payment of $10,000; a 30-year fixed (6.5%) mortgage of $1,200; and the taxes and insurance amounting to $333. Notice that the Principal, Interest, Taxes and Insurance (PITI) is $1,533; this family is spending 47% of their net pay on a median priced home. 

                   It is really important to know how much house you can afford so that you can plan your budget. Buying a house that exceeds your budget can be disastrous. 

3.       Get pre-approved for the mortgage. Before shopping for a home, you can ask for mortgage pre-approval. When you get pre-approval, the mortgage lender reviews your current financial situation and credit to gauge how much they are willing to lend you. Getting pre-approved for a mortgage is highly important for two reasons: you know what you can afford and the possibility that the seller accept your offer over another that is not pre-approved.  There are several steps for getting pre-approved for a mortgage.

a)      Talk to different mortgage lenders and find the best mortgage package that fits your needs.

b)      Prepare completely your financial biography by securing your Federal tax returns for the last two years, proof of investment income, bank statements, etc. 

c)       Watch your credit score. 

d)      Find a reputable and legitimate lender to deal with. 

e)      “Watch the clock” meaning keep an eye on the documents like pre-approval letters and verify their expiration dates.
Indeed, if you don’t apply for a mortgage pre-approval, you’ll not be able to figure out what you can afford or worse, there will have little or no possibility that the seller accept your offer.  

Now that you know the steps in preparing to buy a house, why not give yourself a treat? A cup of coffee or a chocolate bar may do. See? We now understand that planning and preparing steps are not as difficult as we think but it’s just a piece of work that we have to accomplish as an essential component of a whole task (buying a house). 

Following the steps to preparing to buy a house gives you a comfort to yourself; meaning no worries when it comes to dealing with the actual process of buying.

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Financing Your Car Purchase

Nowadays, almost every American family wants to own a car. However, acquiring one, whether new or used, can be costly. One of the first steps in purchasing a car is to consider the financing options available. To ensure that you find the right financing, investigate financing through a dealership loan, a bank or credit union loan, a loan from an online lender, or a home equity loan. .

Different options to finance your car purchase

Car dealership Loan 
A dealership loan is a common and convenient option to finance a car. When you shop for a car, consider the auto financing that different dealers offer you. Offers vary, so take time to shop around for the best deal; compare the Annual Percentage Rate (APR) and length of the auto loan. Make use of loan calculators available on many websites. Dealers charge higher interest rates than banks or credit unions. The only advantage that you can get through the dealership loan is the convenience. Be aware that this type of loan can also be more costly because dealers make money from selling you your car in several ways like holding points of rate, undervaluing a trade-in, charging customer service fee and extended service contracts.

Home Equity Loan
A home equity loan means that you borrow a sum of money and your home serves as collateral. The interest you pay is tax deductible; that is, you can save more money on your taxes with this type of loan. The term of a home equity loan varies, usually ranging from 12 to 240 months. For example if you take $25,000 Home Equity Loan Up to 100% Equity loan with a 12 month term at 6.24% APR, your estimated monthly payment may be $2,154.42. The amount of your monthly payments may vary according to the length of term. Indeed, home equity loan is a great option to lower your interest cost and save money. Also, it comes with fixed interest rates that can benefit people trying to save for the future. The good thing about a fixed rate is you know exactly how much you’ll pay each month.  However, you have to pay the monthly payment regularly because your home is at risk if you fail to do so.

Loan from banks or lending institutions
This option is ideal to those who want to have a car because it usually covers payment from five to seven years period. Meaning, you don’t have to rush when it comes to paying it because the allotted period is long enough. Here, the interest rate depends on the car model. Usually, banks run credit check once you apply. Your FICO score should be qualified in order for them to grant you loan. Now, here is an example that is based from BankingMyWay National Auto Rate tracker. An ordinary bank-generated 48 month (4 years) car loan presently carries an interest rate of 4.667%.Usually, banks offer ranges from 36months to 72 months for an auto loan. You can establish personal relationship with the bank; thus, you may benefit from it. However, there is a risk that you may experience the disadvantage of uncompetitive interest rate.     

Now that you know the options for financing your car purchase, it’s time to think which option suits you; make a wise decision. Finding the right option isn’t a trivial matter.

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