When you are deciding on whether to buy a home, the beauty of numbers can take on a new significance. Why? Because buying a home is a big deal and it can make you a little nervous. There’s so much to consider and it’s so … permanent. This feeling is especially familiar to first-time homebuyers. But whether you’re new to home buying or you’ve done it before, you need data – cold hard data to help you get your ducks in a row long before you pick up the phone to call your local, reputable mortgage broker, banker or lender.
You can find help getting started from those who keep track of your financial activity and from those who really know their numbers, like financial advisors, lawyers, accountants, bankers, mortgage brokers, even the latest financial wizard on the bestseller’s list. All of these experts can help you gauge where you stand and what you need to do to become a homeowner, again or for the first time.
All that stuff you learned in school about math and responsibility comes into play as you get your financial bearings. It may seem overwhelming at first, but just like with long division in the fourth grade, you will eventually get a handle on it. Soon, taking the reins on your finances and your homebuyer options will be yet another life skill you can feel good and empowered about.
PMI, tax credits, down payment, FICO score, credit reports, APR, closing costs … These words are all about the numbers. You can learn about them by tapping into numerous resources in your area, whether you consult with a financial advisor or you start by buying your uncle lunch in exchange for some good advice on financing a home. You might also research terms, options, and more using the World Wide Web, but remember that it’s best to stay away from “too-good-to-be-true” offers. This is not the time to send a check for 39.95 for Randy’s best financial solution in the Universe. This is the time to get some straight facts from unbiased resources.
You might also think about picking up a finance book or magazine (or check them out at your local library. Consulting more than one of these sources (in your kitchen online, with your uncle over minestrone, along with a mocha latte at the local bookstore) is best for getting real goods. And remember that non-commercial references are more inclined to provide objective data (like government or consumer advocacy books, journals and websites).
As you discover the nitty-gritty details on your financial profile and options, you’ll get empowered. Some facts may not be pleasant to uncover, but they won’t go away just because you don’t know what they are. Be a brave pioneer in your own private Westward Expansion: Take off the convenient blinders of ignorance and find out what you’re worth and what creditors are saying about you. This is how you can get ready to make the next smart move.
Some facts you may want to unearth first:
What’s my FICO score?
This happens to be the number that creditors are most interested in. It’s based on five variables:
New credit The types of credit you have used How long you’ve had credit Amount owed Your payment history
The last two items will count extra in your FICO score in most cases. Find out this score by going to this website: http://www.myfico.com/Default.aspx Read up on what scores are best and how they’ll affect your APR, then request your score. It’s not free, but it’s worth it. If you find errors on your FICO report, don’t hesitate to take steps to have them corrected.
Speaking of APR …
The APR (Annual Percentage Rate) is the interest rate on a loan for one year. You’ll hear two terms: “nominal” and “effective.” The first is an interest rate multiplied by the number of payments in a year. The second varies by jurisdiction and includes everything from service charges to loan origination fees. Repayment varies. Sometimes a loan is set up so you pay the fees with the first payment, while other times it’s rolled into the loan and you pay a nickel a month for 30 years, with interest. The Federal Reserve Board monitors and enacts changes under the Truth in Lending Act. Called “Regulation Z,” rules make it easier for consumers to find out just what these fees are in the effective APR.
The big three:
Did you know you can get the “big three” credit reports once a year for free? It’s true. Look here: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm and wait no longer. Remember to read these when they arrive in your mailbox and compare them. They will not be identical and may even contain inaccurate or conflicting information. Find out and fix these mistakes to improve your credit rating.
Other terms to master:
These are some cold numbers. But be brave.
First, PMI. This stands for “private mortgage insurance” and you’ll have to pay it until your home equity reaches 20%. Talk to someone smart about ways around this and/or why it’s required.
Second: Tax credits. These are offered here and there, now and then, when there’s a recession, global warming …all kinds of reasons. Look into what’s “hot” now and see if you qualify. Couldn’t hurt; might help.
Third: Long before closing, you should be aware of closing costs, such as the loan origination fee, interest payment, escrow and other costs. These are not all written in stone, so find out which ones are negotiable.
Fourth, your nest egg: In terms of money that you’ve saved up for a down payment: the more you have the better, since you won’t need to borrow it at interest. FHA, VA and some other options might be for you if you don’t have anything or have very little saved for a down payment.
Now that you know which end is up:
When you’ve done the work and have a good idea of how your creditors will see you, how much you will need and how much you will pay, it’s time to take a little breather. Remember that time is on your side. Unless you’re in a hurry to take advantage of a tax credit (see above), take a quiet moment with a nice cup of something soothing before plunging into the home buying process.
Once you’re ready, you can ask around, look at Better Business Bureau ratings, and other clever consumer moves to find the right mortgage broker or lender who will operate in your best interest. Look for a professional who is willing to put the facts on the table and address every one of your concerns. Then take a deep breath …