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Move Up Readiness

How do I prepare financially?

It stands to reason that if you’re going to purchase a “move up” house—bigger size, better location, fancier finishes—it’s going to cost you more. Maybe, lots more. So naturally, you need to be in good financial shape. Here are some tips.

GET YOUR CREDIT REPORT.

There are a number of companies that provide information on your credit history to lenders. You can get a copy of your report on-line almost immediately. (Use EquifaxExperian or any number of other companies.) You may want to get a report from more than one company to validate the history.

Analyze the report as impartially as possible.

  1. Look for notations of delinquent and late payments. 
  2. Do you pay only the minimum amount required? 
  3. Have large balances remained static over long periods of time? 
  4. Check for errors on balances or accounts you don’t even hold. 
  5. Evaluate your total outstanding credit against your income. 
  6. Also realize that lenders look at the available balances on accounts.
  7. Having too much available credit can be a negative.

Once you’ve reviewed your credit picture, consider how you might improve things from a lender’s perspective and act on it.

  • Eliminate as many credit card balances as you can.
  • Pay down other installment loans.

SIZE UP YOUR DOWN PAYMENT.

To get a mortgage loan without paying expensive mortgage insurance, you’ll probably have to put 20% of the price of your new home down. And don’t forget there will be closing costs to pay—points, settlement fees and the like. The best rates typically go to those who put the most down, so plan accordingly.

For most move-up homebuyers, the bulk—or all—of their down payment comes from the equity realized in the sale of their current home. Deduct the amount you still owe on your mortgage and expected settlement costs from the selling price of your home and you’ll see how much potential down payment cash you’ll have available.

FINANCE WISELY.

Not all mortgages fit all people. Review the available options before determining to go with a traditional 30 year, fixed rate loan. Adjustable rate mortgages offer a loan rate for a prescribed number of years. 15 Year payout mortgages typically offer a slightly better rate, but they do have an impact on tax deductibility as well since a greater amount of your payment goes toward the principal. Sometimes very low rate mortgages carry higher points and may not be the deal they seem if you’re not going to keep the house for many years.

All in all, it pays to do your mortgage homework.

Review it. Get some tutoring from a Tom Faison Group professional, and then settle on the right mortgage for you.