Kathy Henne: Start on the Right Foot

By Kathy Henne

As you consider buying your first home, you’ll get lots of advice, but you shouldn’t do anything without a complete understanding of your financial situation and how much home you can afford. So, where do you begin?

There are two parts to financing: the down payment and the loan amount. Some loans require a down payment of 5%, 10%, or 20% of the purchase price. If you have great credit scores, you may qualify for a loan with a lower down payment. You can secure the best interest rate by reviewing your credit report and correcting errors, which are surprisingly common. It’s best to do this at least two months in advance of your home search because that’s how long it can take to clean up your reports. You can receive a free credit report from AnnualCreditReport.com or your loan officer can pull a credit report for you.

You’ll know exactly what you can afford by securing a pre-approval from a reputable, local lender, who will review your income, debt and credit, and suggest the loan program best suited to your qualifications and needs. If you can put down a larger down payment, you may qualify for a higher loan amount.

With less than 20% down payment, you might pay a higher interest rate or be required to purchase Private Mortgage Insurance (PMI) for your lender because the lender assumes a greater risk. Consult with your loan officer about ways to raise the cash for your down payment, like withdrawals from an IRA or gift funds from a relative.

With your financial house in order, you’re ready to discuss your desires with an experienced real estate professional and begin your home search with confidence. A wonderful new home will soon be yours.