Mortgage insurance: If you take out a conventional loan and put down less than 20%, it’s possible you’ll have to pay private mortgage insurance, which protects the lender financially. You can typically request for PMI to be canceled once you reach 20% equity in your home. If you take out an FHA loan, you have to pay mortgage insurance, though you may be able to cancel your insurance once you pay down enough of your loan.
1. Credit history. Run a credit report on yourself – which is free to do once a year and doesn’t affect your credit by going to annualcreditreport.com and receiving a report from each the three major credit-reporting agencies – and focus on the areas you can improve. You may have credit card balances to pay off, or a few missed student loan payments from a couple years ago. You may also simply need more time to pass from a recent borrowing mistake. The more time that passes from the last blemish on your credit report, the less likely a lender is to consider it a red flag to give you a loan.
As you’re comparing quotes, ask whether any of the lenders would allow you to buy discount points, which means you’d prepay interest up front to secure a lower interest rate on your loan. How long you plan to stay in the home and whether you have money on-hand to purchase the points are two key factors in determining whether buying points makes sense. You can use this calculator to decide whether it makes sense to buy points.
Ask your real estate agent for information on crime rates and the quality of schools around your prospective neighborhoods. Calculate your new commute times to see if they seem manageable. Visit the neighborhood at different times and days to check for traffic conditions, noise levels, and if people are comfortable being outdoors. Only choose a neighborhood that you and your family feel good about.
Sounds hard to believe, but it’s not rare for new homeowners to be late with their first monthly payment, or to miss it altogether, says Neil Garfinkel, a real estate attorney with Abrams Garfinkel Margolis Bergson in New York City. “Maybe you didn’t fully understand the process. You thought it was being auto-deducted but it’s not being auto-deducted. You didn’t get the bill in the mail. Whatever. Those first couple of payments, from a credit perspective, are really, really important,” he says.
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