By Jim McKinley
Special to the Financial Independence Hub
Purchasing a house is a major investment, and finding one you can afford can feel like quite a puzzle. However, there are some smart, money-stretching strategies you might not know, but that can make all the difference in your financial situation. Read on for tips and tricks to help you land the home you’re dreaming about.
Dealing with Down Payments
One of the big hurdles for home buyers is gathering funds for a down payment. Lenders traditionally require 20 per cent down, which calculates to tens of thousands of dollars that many people don’t have sitting in their bank accounts. There are strategies for gathering those funds, like paying off credit cards and saving your cash, taking on a second job, or selling belongings.
Bear in mind that lenders will look at your bank statements to examine where your funds came from, and if anything looks fishy, such as a sudden large deposit, they might hold it against you. Mortgage lenders want to see financial stability, so big fluctuations, bounced checks, and irregular activity could damage your chances for a loan.
For home buyers struggling to come up with a down payment, there is good news. There are FHA loans available that permit as little as 3.5 per cent money down (in the United States). On top of that, you might be able to use gifted funds, which most lenders do not allow.
A couple other opportunities for special mortgages are available. Veterans can aim for a home loan through the VA, and for low-income applicants in rural areas, the USDA offers 100 per cent financing through Rural Housing loans.
Squeaky clean Credit
No matter where you apply for a loan, the lender will examine your credit history. Chances are you know if you’ve made some mistakes, but sometimes credit reports have clerical errors on them. Thankfully, there are ways you can clean up your credit score, but it can take a little time, so if you plan to apply for a loan, get started early.
Start by requesting a free credit report and give it a thorough once-over. If you find errors, you will need to dispute them with the reporting agency, explaining the problem and documenting the error. After that, there will be a time period in which the error can be substantiated by the appropriate credit institution, and if they fail to do so, it is then removed from your credit report.
It can also help to pay down your debts because lenders will examine your debt-to-income ratio. As InCharge points out, you will generally need a result no higher than 43 percent of your income. Keep in mind the lender will include your potential mortgage payment in that calculation.
Rethink your Search
House hunters often search traditional home listings in hopes of finding the home of their dreams. However, thinking outside the box can mean broadening your search. For example, foreclosures can be a bargain under the right circumstances, but you should weigh the pros and cons carefully. Continue Reading…