Buying A Home? Here’s How To Do It
By Lisa Scontras
While sellers are staging their homes and planting for-sale signs on front lawns across the islands, prospective home-buyers should also be getting ready for the busiest home-buying season of the year.
Between April and the end of July, more people move than any other time of year, according to the National Association of Realtors. And with moving season in full swing, buyers will find that taking a few simple steps to streamline the home purchase process can save time, frustration and money.
Leonard Fernandes, assistant vice president at First Hawaiian Bank, advises those hoping to qualify for a mortgage to examine their own finances, identify down payment funds available and decide what dollar amount is comfortable as a mortgage payment. A loan officer can help prospective homebuyers itemize their income and expenses, and isolate those funds available for a mortgage. It’s a relatively simple formula, and in one meeting a lender can help pinpoint a realistic purchase-price range.
“It is very important that buyers are comfortable with their down payment and with the proposed monthly obligations, which include the principal and interest mortgage payment as well as the monthly escrow payment for property taxes and home-owner’s insurance,” Fernandes says. “There may also be monthly association and maintenance fees to pay.”
A loan officer can walk you, the prospective buyer, through the following process:
1. Prequalified vs. Pre-approved?
Knowing how much you can afford to pay for a home is a critical first step. Your ultimate purchase price will be a function of current mortgage interest rates, your credit score, down payment, income and expenses. And a lender can make those calculations for you. There is no fee to obtain a prequalification from a lender – and you are not committing to a lender by asking them to prequalify you.
“A prequalification letter is all that is necessary to start the home purchasing process,” says Fernandes. “Once a buyer is serious and contracts to buy a home, the seller will require the buyer to get pre-approved.”
2. Check your credit score
When applying for a mortgage, the lender will pull your credit report and review your credit history. Credit scores range between 300 and 850. “The higher your score, the more comfortable a lender is that you will repay your obligation on time,” he says. “Generally, 640 and above is considered to be good credit.”
3. Existing tax credits
A tax credit is a sum of money deducted from your total tax debt, when you file your income tax. And one such credit available is the Mortgage Credit Certificate Program – available to home-buyers who qualify based on income and purchase-price limits.
“For those who qualify, the federal income tax credit is equal to 20 percent of their annual mortgage interest,” says Fernandes. “MCC loans are only available through participating lenders and First Hawaiian Bank currently has funds available for this program.”
The credit potentially amounts to thousands of dollars a year and it is worth finding out if you qualify.
4. How much down payment do I need?
Tax refunds are often a good source of down payment funds. Typically, today’s homebuyer should have 20 to 25 percent to put down on a purchase. While there are special programs that a buyer can qualify for to reduce the down-payment requirements, such as FHA and VA loans, the larger the down payment the more affordable the monthly payment.
For buyers interested in new construction, First Hawaiian Bank is the lead lender at many projects, including the Pacifica Honolulu on Kapiolani. Long-term loan locks are available on homes under construction, allowing buyers to take advantage of today’s low rates.
If you’re one of the many buyers planning to make a home purchase this summer, start planning now. What you do, and don’t do, ahead of time, can help get you the best rate, and the lowest payments.
“When you’re in the process of purchasing a home, refrain from making other large purchases on credit, such as buying a new car,” says Fernandes. “Even cosigning for an obligation may impact the amount that you are qualified to borrow.”
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