Buying A Home

How to Buy a Home This Year

Written by Rebecca Lake

It’s a new year and if one of your financial goals is buying a home, the time to act may be sooner rather than later. After raising interest rates last December, the Federal Reserve is expected to implement three additional rate hikes in the coming months. At the same time, home values are projected to rise by 3.5 percent through the end of 2017, according to Zillow.

What does that mean for prospective buyers? Snagging your dream home may be more expensive. Having a great credit score can help keep the interest rate you pay on a mortgage low but that’s only one part of the equation. There are a number of things you need to keep in mind if you’ve got your sights set on becoming a homeowner this year.

1. Set your budget first

One of the worst mistakes prospective homebuyers make is jumping into the market without having a clear of idea of what they can actually afford. What inevitably happens is they find a home they love and end up taking on a bigger mortgage than they need, putting a major strain on their finances in the process.

Before you start browsing online listings or heading out to open houses, crunch the numbers to see what a reasonable mortgage payment really is. This is where it’s important to keep those interest rates in mind.

Let’s say you make $55,000 a year, you spend $250 a month on your other debt payments and you have $20,000 for a down payment. Assuming you qualify for a 30-year, fixed-rate loan with a 4% APR, you’d hypothetically be able to afford a home worth $202,000. If rates were to go up, however, and you now qualify for an APR of 4.25%, you’d be looking at a home worth $197,000 instead.

Running the numbers is important because you don’t end up with an oversized mortgage. Buying too much home could put your financial security in jeopardy if your income goes down or you’re temporarily out of work and you can’t keep up with the payments.

2. Take a close look at your credit
Your credit history plays a big part in determining whether you get approved for a mortgage. Lenders have been loosening up credit restrictions in recent years, with 77% of all purchase loans closing in December 2016, but you still need to mind your p’s and q’s where your credit is concerned.

Checking your credit reports is a good place to start. Review them for any errors or inaccuracies, as well as any signs of potential identity theft. If you spot something that’s incorrect, you have the right to dispute it but proceed with caution. Mortgage lenders may put the brakes on a loan approval if you have one or more open disputes on your credit report.

If your score is below the 620 mark, which is the minimum score needed to qualify for a conventional loan or an FHA loan with a 3.5% down payment, take a look at what could be dragging it down. Late payments or a high utilization ratio may be the worst culprits. If so, work on paying down your balances and make a point of paying on time each month to establish a positive payment history.

About the author

Rebecca Lake

Rebecca Lake is a personal finance writer and blogger specializing in topics related to mortgages, retirement and business credit. Her work has appeared in a variety of outlets around the web, including Smart Asset and Money Crashers. You can find her on Twitter at @seemomwrite or her website,

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