Buying a Home in 2009: What You Need to Know About Financing and Credit
With the coming New Year, many people start thinking about the changes they would like to make in the coming year. One of these changes is often to buy a new home. And, while buying a home required planning and preparation in the past, it requires even more now, thanks to the current state of the mortgage market. Here are some of the important things you need to know about financing and credit for 2009:
Lower interest rates make this a good time to buy a home
The government is determined to do what it can to get the housing market moving again, and that includes taking measures to force down mortgage interest rates. Interest rates are lower than they have been for years, and this means that 2009 may be a good year to get a new home loan. Additionally, with such low rates, it can also be a good idea to refinance an existing mortgage — if you do not want to buy a new home.
Changes to the FICO score formula
You need to have good credit in order to get a good interest rate on your home mortgage loan. Indeed, many mortgage lenders have harder credit requirements right now than they have in the past, since they have become worried about the creditworthiness of their borrowers. It is also important to note that FICO is introducing a new credit score formula in 2009. This means that your credit score could change rather dramatically, depending on the finer shadings FICO will be adding to its scoring process.
New FHA loan rules are in place
If you are looking for an FHA loan, be aware that new rules are in place. Down payment assistance is harge to get, and the down payment requirement is higher. (Many mortgage lenders are requiring larger down payments than have been needed in past years.) Remember, though, that the FHA insures mortgages, and does not lend. This means that your mortgage lender might have more stringent rules to approve you.
In general, getting a home mortgage loan in 2009 is going to be a little more difficult than it has been in the past. You are going to need more documentation to prove your income, a higher credit score and a larger down payment. Before you apply for a home mortgage loan in 2009, make sure that you do the following:
- Know about different types of loans, and how they differ in payment structure.
- Double check your credit score after the new FICO formula is put into place next week, and make sure you know which direction your credit score is headed.
- Save up for a down payment of at least 3.5% (FHA rules), but aim for a 5% to 10% down payment.
- Keep records of your income, and get your tax stuff together for 2008 at soon as possible so that you have it to show your mortgage lender for income verification.
- Set money aside regularly to make sure that you can afford a mortgage payment.
- Don’t forget to include taxes, closing costs and maintenance costs when you are figuring the total cost of owning a home.
