Yay! You’re ready to buy your first home and you’ve decided to buy a house in Billings. Smart move.
Of course, you know you’ll need a down payment and you’ll pay closing costs as well. Plus, you’ll need cash to give the seller for an earnest money deposit. If you don’t qualify for any of the down payment assistance programs in Billings (see them here), you’ll need to start saving some money, and the Realty Billings Team has some tips for you.
Where to start
How’s your credit? The lousier it is, the lousier your loan will be. Low credit scores result in higher interest rates and, often, higher homeowners insurance rates, both of which will raise your monthly house payment.
Order your credit reports and go over them, looking for mistakes. You’re entitled to free reports every 12 months from annualcreditreport.com, the only free credit reports authorized by the government.
If you find errors, dispute them. The experts at the Federal Trade Commission tell you how on their website (scroll down the page to find the information).
Once you’ve cleaned up your credit as much as possible, visit a couple of lenders. Each lender, by law, must supply you with a form known as the Loan Estimate, within three days of taking your application.
Learn more about the form and how to use it to compare lender offerings, from the Consumer Financial Protection Bureau. Remember, when comparing interest rates, use the annual percentage rate (APR).
And, don’t be afraid to apply for preapproval with several lenders. You are under no obligation to pursue a loan just by requesting preapproval.
Now that you know how much you can borrow, or at least a ballpark figure, you can figure out how much you’ll need to save for a down payment and closing costs. For the latter, use the Loan Estimate’s figures.
For a conventional loan, you’ll need to save at least 20 percent of the loan amount for a down payment. The average down payment for an FHA-backed loan is 4 percent, according to the latest Ellie Mae Origination Report. If your credit score is low, however, you may be required to pay a 10 percent down payment.
Fannie Mae and Freddy Mac offer a product with a down payment requirement of only 3 percent.
Tips for saving
Saving can be difficult, but it becomes easier with a plan. Here are a few tips to help you save:
Use the Automatic Payment Method – Just like paying your bills automatically, you can pay your savings account a specific amount out of your paychecks automatically. If you don’t see it, you won’t spend it.
- Dedicate Tax Refunds to Savings – If you receive a tax refund every year, dedicate it to your savings.
- Divert bonuses and other unexpected windfalls into your savings.
- Stick to your Plan – Don’t get distracted by something shiny and new.
These tips will help you save toward your down payment, closing costs and earnest money deposit and will allow you to get into a Billings home sooner, rather than later.