Yesterday, Enbright Credit Union attended a community breakfast to help honor the police, fire department, and EMTs at the Madison Police Precinct. We cannot thank you enough for your longstanding dedication, bravery, and service to the Madison Community. 👮👨🏾🚒🧑🚒
When you’re ready to take out a mortgage, be sure to check out credit unions and other lenders to find the best deal. Until then, let’s take a step into homebuying.
The more you can save, the easier your home buying process is. Certain loans require a down payment that is equivalent to 20% of the purchase price. For instance, if you’re buying a home that’s $300,000, you’ll need $60,000 in the bank for your down payment. There are mortgage loan programs that require less of a down payment, some as little as 3%. Even with a small down payment, buying a home means you need to save money. In addition to a down payment, you may need funds for the following:
* Cash reserves are money in a savings account after you close on the home. Specific loan applications may require you to have these reserves on hand. The bottom line is to start saving when the desire to buy your first home comes into mind.
A good rule of thumb is that your mortgage should be no more than 28% of your pre-tax income. Take your income, and multiply it by 28, and divide that by 100. To make your goal of buying a home a reality, create a budget and stick to it.
Your credit score will determine what type of loan you qualify for, the rate, and other options. You may receive a lower interest rate and more cost-saving options with a high credit score. Credit scores can differ amongst the three major credit reporting agencies (Experian, Trans Union, and Equifax). Additionally, a VantageScore and FICO (Fair Isaac Corporation) score may differ from the three agencies. Generally speaking, a FICO score is the preferred score for most lenders.
Here are the ranges for FICO scores:
| Exceptional | 800 – 850 |
| Very Good | 740 – 799 |
| Good | 670 – 739 |
| Fair | 580 – 669 |
| Very Poor | 300 – 579 |
*(“What Is a FICO Score and Why Is It Important?” MyFICO, 21 Oct. 2021, https://www.myfico.com/credit-education/what-is-a-fico-score.)
If you have a high credit score now, take steps to protect it. Follow these tips:
If your credit score is low, there are ways to move it up.
Buying a first home does not happen overnight, and this is good news! This gives you time to save more. If your credit score is low, there’s time to move that needle into the green.
Not all home loans are the same. Some are specially designed for new homeowners that offer special rates, low or no money down, and other considerations. Government-guaranteed loans such as FHA and VA offer favorable terms and conditions to home buyers and may be helpful to those with a lower credit score.
As a first-time homebuyer, you’ll need a highly qualified mortgage loan expert to help you navigate through a sea of loan options. Therefore, finding the right financial institution is extremely important.
There is a difference between prequalification and pre-approval. Not knowing the difference could mean losing out on your dream home, especially in a hot housing market.
Prequalification is only an estimate of a loan amount. There is no guarantee that you’ll receive funding. A prequalification can be handy when you’re at the very early stages of home buying. It will give a realistic idea of the loan amount and calculate how much you need to save.
A pre-approval is a deep examination of your financial health history and gives lenders a good idea if you qualify. After a pre-approval, you’ll receive possible interest rates, loan amount, and monthly payments. Real estate agents love when clients are pre-approved. They know you’re serious about buying a home and are financially able to do so.
Home buying is a complicated process. A top realtor will help you navigate the home buying process and could save you money. Family and friends are good sources for recommendations. A good rule of thumb is to interview at least three realtors and be sure to ask for references. It’s important to find one that will serve your interests best and you feel comfortable working with.
As soon as you commit to buying a home, start looking online and in-person for homes. Attend as many open houses as possible. Open houses can be done in person or virtually. If you go on a virtual open house and like what you see, you must explore the area more.
If you’re out of state or can’t visit the area directly, you’ll need to do extensive online research to gauge the neighborhood and outlying area.
You’ve finally found your dream home, and you’re ready to make an offer. An offer letter will usually be in writing and include the following:
Your agent can help you create an offer letter or write it themselves. Some letters will include an earnest deposit which may be 1 – 2% of the purchase price or whatever is common in your area. An earnest deposit may be lost if you cancel the offer. The agent will submit the letter, and the waiting game ensues. Sellers typically respond by accepting, rejecting, or countering. Negotiations will continue until both parties are happy or the agreement falls through. If the seller accepts, it is time to move on to the home inspection and appraisal.
A home inspection is always a good idea. Most lenders do not require an inspection, but it could reveal some unsavory issues that you’re unwilling to accept or want to have the homeowner address before selling. A few examples of what a home inspector may check for include:
Home inspections are crucial and protect the buyer from buying a home with expensive problems. Buying a home ‘as-is’ or without an inspection will leave the buyer to repair any issues.
An appraisal is different than an inspection. A home appraisal is concerned with the value of the home. The inspection is about the condition of a home. Home appraisals will require a walkthrough of the house. The lender picks the licensed appraiser and will look at:
After the appraisal, a final report is created and includes a fair market value.
Homebuyers can ask for repairs or credits after an appraisal comes back. Repairs are related to safety issues like plumbing, electrical, mold, or leaking roofs. The home buyer will review all appraisals and inspection reports with the real estate agent. If you’re in a sellers’ market, it may be best to overlook minor issues like chipped paint or inexpensive repairs.
After the appraisal and inspection are completed, and everything looks good, you’ll go through a final walkthrough. A final walkthrough involves making sure every last detail has been taken care of. A few things to look for include:
Closing on a home is the final step before the house is 100% legally yours. At the closing, you’ll be signing a lot more documents. Bring your ID and a check for closing costs. After signing the documents, the title company will register a new deed in your name(s). Now it’s time to celebrate. Today is the day you are a proud, legal owner of your dream home. Congratulations are in order!
Buying a home is not easy and can be one of the most challenging purchases you’ll experience. After moving in and getting settled, don’t be caught off guard by the cost of homeownership. Start a home savings account for those unexpected (and expected) home expenses.
And, don’t forget to keep your finances looking as good as your home. As a not-for-profit, cooperatively-run organization, credit unions can help with all your financial needs. Find one in your area and see why new homeowners make credit unions their trusted financial partner.
https://www.yourmoneyfurther.com/personal-money-solutions/mortgages/tips-for-first-time-home-buyers
Debt can be good debt if it’s used for items that appreciate, such as a home equity loan. Debt can be bad debt if it is used for items that depreciate such as durable goods or credit card debt. Credit unions can help you learn more about debt and how to manage it.
Not all debt is necessarily bad, particularly when it can help you build wealth. It’s important to know the difference between good debt and bad debt and how to sort the good from the bad.
Let’s say you buy disposable items or durable goods with a high-interest credit card, and you don’t pay the balance in full when the bill arrives. You’re being charged interest while that item continues to depreciate and lose value, so that’s bad debt. On the other hand, investment debts that create value—such as real-estate loans, home mortgages, student loans, and business loans—are examples of good debt.
A tax-deductible home-equity loan at 6% is considered good debt if you can use it to pay off a credit card with an interest rate of, say, 17%. Of course, the key is not to run those debts back up. What about auto loans? You might think they’re always bad debt because most cars go down in value, but if you take out an auto loan for a car that gets better gas mileage than your old vehicle, you could be better off financially.
The No. 1 example of good debt is mortgage debt because home values generally increase. They plummeted during the Great Recession (2008–2009), but have increased nearly 49% since 2010. The current national average appreciation rate is 14.5% per year. Homeownership is one of the best ways to build wealth over time. Other strategies for building wealth include:
It can be beneficial to get preapproved for a car loan before shopping for a new car. Getting preapproved for a car loan means you’ll know what size loan you’re qualified for, what kind of rate you’ll pay, and it shows car sales staff that you’re a serious buyer.
Before you set foot on the car lot, get preapproved for an auto loan at your credit union. Getting preapproved for a car loan means you’ll know what size loan you’re qualified for, and what kind of rate you’ll pay, and it shows car sales staff that you’re a serious buyer.
If you have questions about how many cars you can afford, or how financing works, a credit union loan officer will be happy to help.
You may also be asked to list a reference or provide other information.
Once you’re preapproved, you’ll receive a preapproval letter that you can take car shopping showing the amount you’re approved for.
Getting preapproved gives you a big advantage in the sales lot. It removes the pressure of negotiating financing contracts at the dealership and allows you to focus your attention on finding the right vehicle at a price you can comfortably afford. And, if you need another incentive, our low auto loan rates can get you on a faster track toward making your dream car a reality.
A personal loan is money borrowed from a financial institution and is paid back with variable or fixed monthly payments over a period of time. Personal loans are flexible with short to moderate-term payment plans. Most personal loan terms can range between one and seven years.
Borrowers can use a personal loan for:
Most personal loans are unsecured. This means they are not backed by any collateral. Additionally, your income, credit score, debt, and other factors will determine if you are approved or not.
If you don’t qualify for an unsecured loan, you may apply for a secured personal loan. A secured loan is backed by collateral or an asset such as your house, car, or co-signer. A co-signed loan requires an additional applicant with a high credit score to guarantee the loan. If you can’t pay the loan, the co-signor is responsible for any missed payments.
Additional types of personal loans include:
Personal loans offer greater flexibility in what can be done with the funds. Unlike a car loan which is only used to purchase a car, personal loans are used for a wide variety of needs and circumstances. Personal loans can be used for:
Personal loans have a lot to offer. Personal loans can build credit and consolidate debt into one convenient monthly payment. Consolidating debt through a personal loan is a better financial move than using payday loans. Payday loans can have an interest rate of 400% or higher and must be paid out within two weeks.
Personal loans are attractive because they:
Personal loan considerations:
Personal loans can be an excellent way to cover planned and unexpected expenses, but consumers need to be aware of personal loan considerations. Be aware of all fees and penalties before signing any documents. Some lenders charge prepayment penalties. Check what the fee is for late payment and origination fees.
Only those with the best credit score will qualify for a low Annual Percentage Rate (APR). If you don’t qualify for a secured loan, you may need to use collateral. If you cannot pay the loan, the lender can keep the collateral listed. If your budget can’t take on another monthly payment, a personal loan might not be the best solution.
The annual percentage rate or APR is the yearly cost of a loan and is always shown as a percentage. An APR for a loan includes fees and is the total price you pay to borrow the money. Try to avoid a loan with a high APR. Determining the APR is simple:
What You Need to Know About Loans. (n.d.). Default. Retrieved July 18, 2022, from https://www.yourmoneyfurther.com/personal-money-solutions/personal-loans/what-you-need-to-know-about-loans
