May 15, 2020
For the last two months, we’ve been more-or-less confined to our homes. For some, this has made one thing glaringly obvious: it’s time to buy a bigger – or perhaps, your first – house! While this COVID-19 pandemic has posed a challenge for the real estate market, especially during the time of year that is traditionally considered the homebuying “season,” it’s still possible to buy a new one. If you’re considering entering the housing market, here are a few things you should know:
Pay off Debt & Start Building Your Emergency Fund
A home is probably the single most expensive purchase you’ll ever make, so it’s best to prepare before you even start looking. When you own your own house, you’re responsible not only for the mortgage and utility payments, but also for the maintenance and repair costs. These can add up quickly. In order to put yourself in the best possible financial position when looking to purchase a home, check your credit score, make sure you are debt free and have an emergency fund of three- to six-months’ worth of expenses set aside.
Maintaining a healthy credit score is important when trying to secure a mortgage, and during these times of COVID-19, accessing your credit information is especially important. That’s why Equifax, Experian and Transunion are now offering FREE weekly online reports through April 2021. Checking your credit regularly will give you an idea of what debts you need to pay off before you’re able to secure a mortgage. We offer a debt payoff calculator in our Financial Wellness Center, that will show you how long it will take to pay off each loan and how much interest will accrue over the length of said loan.
Once you are debt free, you can set up a direct deposit into a dedicated savings account to easily start building your emergency fund. This stash of money will come in handy when, months after you move into your new home, one of your appliances breaks down and you find yourself in need of a replacement or you suddenly find yourself unemployed or without a significant source of your income with which to pay your mortgage.
Calculate What You Can Afford
Before you become emotionally attached to your dream home, it’s important to determine whether or not you can afford a mortgage based on your income and budget. Check out our Mortgage Affordability Calculator to figure out if the monthly payments on a mortgage will fit within your budget. Be sure to account for monthly housing costs (HOA fees, taxes, insurance, etc.). Remember that property tax rates and the cost of homeowner’s insurance can vary, so check with your real estate agent and insurance company for estimates that can help you with your calculations.
Save For Down Payment & Closing Costs
If you’re unable to pay cash for the total price of a house, set a goal to save at least 20% of the purchase price for your down payment. This will help you to avoid paying for private mortgage insurance (PMI), which protects your lender in the event that you can’t make your mortgage payment and end up in foreclosure. PMI usually costs 1% of the total loan value and is added to your monthly payment. If you’re a first-time homebuyer and you’re unable to save 20% to put down, contact one of our dedicated lending specialists to inquire about our first-time home buyer program and our variety of mortgage products. We would love the opportunity to help you purchase your first Home Sweet Home! Remember that in addition to putting money down on your home, you’ll also be required to pay a closing cost at settlement. This cost typically includes a loan origination fee, appraisal fee, tax and insurance escrow, and more.
Get Pre-approved for a Loan
So, you’ve gotten yourself out of debt and you have some money set aside to use for your down payment and closing costs. Before you hit the road in search of Open Houses, make sure you contact us to obtain a mortgage pre-approval. This shows sellers that you’re a serious buyer and can help first-time home buyers get ahead in a competitive market. We will need to verify your financial information (proof of income, taxes, etc.) in order to get started.
Find a Home in Your Price Range
Once you obtain a pre-approval from us, you can begin the search for a home in your price range. Congratulations, and we’ll see you when your offer is accepted!
LUSO Federal Credit Union is a not-for-profit, member-owned financial cooperative dedicated to providing members with quality financial services and products. We at LUSO pride ourselves on serving the financial needs of our members and helping them save for the special occasions in life.
Feel free to contact our Ludlow or Wilbraham branch toll free at 1-844-LUSO-FCU.