Phillip DeLaFuente, Vice President/Mortgage Lending
As exciting as buying a new home is, it can be highly stress inducing. While we do our best to reduce the worry related to the mortgage process, here are seven common stress points and our tips for minimizing them.
Tips for Minimizing Home Buying Stress
- Your credit score. As soon as you find yourself thinking about home ownership, request your FICO score…and that of your co-borrower. Many credit card companies now supply this to you when you go online and sign into your account. It’s also something mortgage lenders can get for you.Knowing the score is important because it determines how much your mortgage will cost you. Generally, if your score is near or below 660, you may not be able to access favorable first-time homebuyer programs, like those provided by the Illinois Housing Development Authority (IHDA).
Scores, however, are not set in stone. Talk to your lender about what you can do to raise yours before applying for a mortgage.
- Potential borrowing limit. Before you look at houses, it helps to know which ones you should be looking at. Getting prequalified for a mortgage lets you know how much house you’ll be able to afford.Prequalification involves sharing your tax returns and paystubs with your lender and discussing your outstanding debts (car loans, credit card balances, etc.) and other commitments on your income (such as child support). If your income is a little low or your debt too high, your lender can offer suggestions for improving your debt-to-income ratio before you apply for your mortgage.
- Affordability. Don’t mistake the most you can afford with what you’ll feel comfortable paying each month. Remember, as you move through life, your expenses and priorities will change. Choose the monthly payment that will cause you the least amount of financial stress, rather than the maximum amount you can borrow.
- New debt inquiries. Once you’ve been prequalified for a mortgage, don’t apply for any new debt, such as store credit to finance furniture purchases. That could throw off the debt-to-income ratios that were used for the prequalification. New inquiries will also lower your credit score. If it’s unavoidable, be upfront with your lender. Bankers hate surprises.
- Down payment. Knowing where the money will come from well in advance will significantly reduce your stress. Money for a down payment can be borrowed, but it has to be from a collateralized loan from an asset such as a 401k retirement account, which is why your lender will request that you document the source. It can be cash, as long as that cash has been “seasoned,” meaning it has been in your bank account at least two months. If it’s a gift from relatives, there needs to be a written statement from them saying as much.
- Closing costs. The most stressful phase of a home purchase is the last. There are many moving parts that need to come together for the transaction to close. Recent regulatory changes now provide you with your closing statement three days prior to closing. This gives you time to deal with any last-minute details, like the amount due for any prorated real estate bills and fees.
- Not knowing what you don’t know. The best way to manage home-buying stress is to talk to your lender. We’re as interested as you are in making the transaction go as smoothly as possible. Never hesitate to give us a call.