The home-buying process can be intimidating for first-time buyers, especially after the housing market’s rollercoaster ride over the last decade. Average home prices spiked from 2002 to 2006, topping out just over $300, 000, and then they fell just as sharply over the next two years. They’ve been up and down since then, bouncing between the $170s and $220s, according to the National Association of Realtors (NAR). An NAR consumer survey demonstrates that consumer confidence is on the rise again, with 68% of respondents saying now is a good time to buy a home; that’s up 8 points from 2012.
Mortgages for First-Time Buyers
Check your credit. Experts agree that most lenders consider good credit to be 660 or higher:
- 760 to 850 is excellent
- 700 to 759 is very good
- 660-699 is good
- 620 to 659 is fair
- Anything below that is poor
Credit scores affect mortgage interest rates. If you have good credit, you’ll have a lower interest rate and vice versa. If your credit score is low, it is possible to improve your credit score and get a better score, but that takes time. You have many options for buying your first home, a few of which are highlighted below. Talk with a mortgage lender who can walk you through the process and recommend options; ask your real estate agent and friends for recommendations.
Bad Credit Mortgage Options
- You can make a larger down payment on your home, which will reduce your monthly payment. If you’ve got credit problems, however, you don’t likely have a large lump sum. Look for assets that you can liquidate without taking large losses. For example, a company like J.G. Wentworth may be able to buy your future payments from an annuity or structured settlement for a lump sum of cash. You’d no longer have the comfort of receiving regular income, but a large down payment on a house can lower the interest rate and get you overall better mortgage terms. Having the cash now may be worth it.
- You can apply for a higher-rate mortgage now, rebuild your credit over the next few years and then refinance your home at a lower interest rate. The disadvantage of doing this is that you have no guarantee that lower interest rates will be available when you are ready to refinance. Also, refinancing is subject to “points, ” which means you’ll have some out-of-pocket expenses.
Improve Your Record-Keeping
Mint.com is a popular tool for people who want to understand where they’re at financially. It’s a web-based application that aggregates your financial information in one place. You can set up alerts, create budgets and track investments through this portal. You cannot make trades, deposits or withdrawals here; it is a money-planning tool that’s free and easy to use. Forbes named Mint one of the 100 best websites for women in 2013.
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