Finance | 16 Year Plan

Check Your Credit

The first thing that you should do before you start the home buying process is check your credit. You can obtain your credit report from one of the three major credit bureaus. The first thing that you should do is look over the report thoroughly to make sure that there are no errors. Next, check your credit score. If your score is low, you might not qualify for a mortgage. Even if you do qualify, your interest rate could be very high. If you have a low credit score, you might want to consider trying to raise your credit score before buying a home. This can save you thousands of dollars throughout the life of your loan.

Figure Out What You Can Afford

Before you start thinking about buying a house, you should figure out how much you can afford to pay each month. When doing this, there are other things that you need add to the equation. You should also think about the cost of the insurance on the home and the cost of the property taxes. To determine what you can afford, start by totaling up your monthly bills. This includes utility bills, credit card bills, car payments, food, gas, and any other expenses that you might have. Take that number and subtract it from your monthly income. This will give you an idea of how much you can afford. If you don’t think about this ahead of time, you could end up taking out a loan for more than you can afford, which can put you at risk for foreclosure.

Gather the Necessary Documents

There are several documents that you are going to need when you apply for a home loan. If you have everything that you need at the time of your appointment, your loan won’t be delayed. The items that you will need include:

• Proof of income
• A list of all of your debt (credit card statements, loan statements, child support payments, etc.)
• A list of all of your assets (car title, bank statements, retirement accounts, investment records, etc.)
• Your W-2’s, 1099’s, or 1040’s for the last three years.

Home ownership is a big responsibility. Before you jump into buying a home, you should make sure that you are ready and that you have everything in order.

Crippling debt can have you scurrying around for refinancing when the prospects of increasing your income aren’t looking so rosy. And whilst this can provide immediate relief, the financial benefits can be short-lived. So the question of when to refinance is fairly tricky as it requires a smart approach.

Why Refinance?

When you refinance on your mortgage you’re simply paying off your mortgage debt using a new loan. In essence, you’ll be extinguishing your current loan repayment obligation with another one. Homeowners have several reasons for doing so. Some want to shorten the duration of the loan and take advantage of lower interest rates. Others are enticed by the opportunity to maximise on their existing equity by using that as leverage for home improvement loans. Then others are simply strapped for cash and just want to avoid foreclosure at all costs. However, refinancing should always be a last resort as it’s not always rainbows and unicorns on the horizon.

Amending Loan Agreement Terms: Switching Between Fixed and Adjustable Rate Mortgages

To dispel the rumors and suspicions it is important to make it clear that refinancing doesn’t just imply acquiring a new loan. In a lot of ways, it entails the amendment of terms that have been agreed to previously in order to make repayment easier. As such, you get lenders willing to sit down with you and discuss a practical way forward. For example, switching between fixed rate and adjustable rate mortgages can give debtors breathing room if it means they can tap into lower interest rates. At a time when the economic environment is thriving, 10 good years of consistently low-interest rates will help you pay off your mortgage faster than when you adhere to a fixed rate.

In theory, the reasons for refinancing a home are compelling. But in reality, it’s not always advisable. So before taking this ‘leap of faith’, ask yourself a few questions.

1. Is there equity in my home. Most lenders expect equity of at least 20% before approving a new loan. Do your homework first!

2. How good is my credit score? If it’s anything below 650 you might struggle to convince lenders. Take time to wallpaper the cracks.

3. What are my current and future plans? Refinancing is a bid deal and requires foresight. Factors like your present employment circumstances and the prospect of retirement should play a huge part in the decision-making process.

According to Wadzanai Munjanja -a senior financial accountant at Ernest&Young- ‘a gut-feeling approach to refinancing is like relying on the weather report. In as much as it’s all figures and calculations, it can be unpredictable.’ The best way to be absolutely sure of when to refinance- and even that’s impossible- is to consult with experts before making a decision that will affect you for the rest of your life.