11 Steps to Buying a Phoenix Home Series-Financing

Secure a Phoenix home loan before you start your home search

Phoenix home loan
If you have been following the future posts in this 11 Steps to Buying a Phoenix Home Series we touched briefly on how to establish or clean up your credit if needed. Now for the purposes of this series moving forward we will assume you have a least a 620 credit score, a steady documented income for the previous 12 months and your DTI is 41% or less as indicated in our previous post regarding debt-to-income ratios…the next step is to get pre-qualified with a Phoenix home loan.

Ask for referrals to qualified Phoenix home loan specialists

Word of mouth is the best way to find a great loan specialist for your Phoenix home loan and your Realtor is a great place to start. Your Realtor should have excellent referrals for you as they tend to use the same preferred lenders over and over again that make them look good and give their clients the best service available. Just like any business if you do a good job, word gets out about your services and others refer you business. I do not recommend just haphazardly going online and completing online questionnaires or applications. 9 times out of 10 your information is sold and you can get bombarded with loan professionals. Find a few that come highly recommended by asking your family, friends, neighbors and Realtor and start there.  A lender should be able to take a phone application and/or secure online application and have answers for you the same day. Unless of course you go to a brick and mortar bank where a pre-qualification can take up to five business days.

Understand the terms and fees associated with your Phoenix home loan

After you complete the application process via online, over the phone or in person you will be provided with a pre-qualification letter that will state the amount of financing you qualify for. In Arizona specifically your Phoenix home loan qualification letter may be issued on as an LSR or Loan Status Report. An LSR will be required to write any offer and typically required prior to view homes. If this is your first time buying a home and applying for a Phoenix home loan you will have several questions. Your lender should be able to tell you your rate (which can still change until you lock it), your estimated mortgage payment including taxes and insurance, your estimated closing costs to bring to the closing table (which you can negotiate the Sellers contribute to), and your required down payment for your particular Phoenix home loan program. First time home buyers will typically use an FHA loan with 3.5% of the purchase price required as a down payment.

Example: 100,000 purchase price x 3.5% = $3500 down payment

There are also Phoenix home loan programs such as a USDA loan which allows first time home buyers to purchase at $0 down provided the property is located in a qualifying area. Phoenix-Metro areas that qualify mainly are Queen Creek, San Tan Valley as well as parts of Apache Junction.

The next step once you receive your Phoenix home loan qualification letter is to select a Realtor to represent you if you have not already done so which we will discuss in the next post in this 11 Steps to Buying a Phoenix Home Series.

11 Steps to Buying a Phoenix Home Series-Budget and DTI

The Phoenix home buying planning process means time to budget

Phoenix home buying seriesIt is time to finally track your spending and put pen to paper an itemized list of where you spend money each month and how much. The goal here is to see how much Phoenix home you can afford within your budget.  The good thing is right now in Phoenix-Metro area you can own for less per month that what you can rent in many areas so your living expenses might actually go down once you buy!

Accurate figures are important to the Phoenix home buying planning process

Start with making a list of all your expenses such as utilities and living expenses such as electricity and groceries, then all monthly expenses such as credit card bills, car insurance and yes add your entertainment, clothes, etc. as well. If you spend $40/week on movies and you want to continue to spend $40/week on movies than include it, otherwise remove or lower it to something you feel is reasonable and then follow that. You may be surprised to find out how much money you spend on certain things that with a few minor changes here and there you can drastically reduce your overall monthly expenditures. After you total everything and subtract it from your income you will have a figure. From that figure take a certain percentage off the top to add to your savings accounts and/or retirement plan, etc and the final figure leftover (assuming you already accounted for miscellaneous disposable income in your list) is what you can afford as a mortgage payment with/without any lifestyle changes while growing your savings.

Lenders consider Debt-to-income (DTI) ratios during the Phoenix home buying pre-qualification process

The above budget is mainly for your purposes so you can determine during the Phoenix home buying process your comfort level with the money in and money out every month and also help identify spending habits that can be modified to help strengthen your overall financials. Lenders will take your debt such as current mortgage/rent, credit cards, car payments and compare it to your income (aka DTI or debt-to-income ratio). The qualifying ratio will vary by loan program and FICO score but for our example we will use FHA which is 41%.

Lets consider a quick scenario in determining DTI for a Phoenix home buying loan applicant;

Your Monthly payment on mortgage/rent = 1200
Minimum Monthly Credit Card Payments = 300
Monthly Car Loan Payments = 450
Other Loan payment = 300

Thus, your total monthly debt payment = $2250

Now, let’s consider your Gross Annual Salary = $75000
So, gross monthly salary = $6250
Other monthly income = $1000
Thus, your gross monthly income = $7250

So, mortgage debt to income ratio = (monthly debt payment)/(gross monthly income)
= ($2250/$7250)  = .310 or 31% which is well within the standard DTI ratio.

Hopefully now you have a good idea of how much you can comfortable afford every month, what changes to you budget need to be made if any and if your debt-to-income (DTI) ratio is in-line with qualifying. If not you may have to pay off some debt to get your ratio where it needs to be as part of the Phoenix home buying process.

11 Steps to Buying a Phoenix Home Series-Repairing Credit

Repairing credit to buy a Phoenix home takes time…

buy a phoenix home by repairing bad credit
If you read the previous post in this 11 Steps to Buying a Phoenix Home Series regarding establishing credit we are back to the same notion of maintaining a good credit history. So it will take time.  Repairing credit is all about correcting the negative references on your report and keeping the items in good standing …in good standing!  There are many reasons one might have bad credit. For the purpose of this post and buying a Phoenix home we will address general misuse or overuse, etc. We will not touch on bankruptcy issues, short sales, or foreclosures in this post as they are different in terms of recovery.

Nowadays, you will most likely need a 620 credit score or higher to buy a Phoenix home with traditional financing

Some things to consider when you review your credit report;

  • When you look at your report there are some things you should keep in mind. If you have too many credit lines this could be hurting your score. You would need to pay off and cancel or at least cancel all but a preferred three cards. The cards that you should keep should be the ones you have had the longest. Longer histories with a creditor helps your score. Try to negotiate lower rates on the three that you keep.
  • Pay down balances on all three remaining cards to 30% or less of the credit limit (10% is better).
  • Put together a budget to pay down any outstanding/delinquent payments or satisfy any debt/judgments.  Many times these balances can be settled and negotiated for less than the full amount.

Keep in mind that to buy a Phoenix home is not a given right but a reward and responsibility

Once your credit is in check make sure you take the necessary steps to keep it that way. Set up automatic payments whenever possible. Don’t wait until the last minute to mail a payment to your creditors. Make sure you don’t overspend or have to high of limits. Report any unauthorized use of your credit. Once you implement these strategies it is just a matter of time and history until you have good credit to buy a Phoenix home.  Your preferred mortgage finance specialist can give you a ball park estimate based on your current credit scenario just how long until your credit should be good enough to qualify for the best rates available to buy a Phoenix home.

If you have questions or comments on credit issues that are stopping you from qualifying to buy a Phoenix home please post them below, we would love to hear from you!

11 Steps to Buying a Phoenix Home Series-No Credit

Buying a Phoenix home requires good credit history

Buying a Phoenix home with good credit
No credit is not good credit. No credit will stop you from buying a Phoenix home. Some people assume they have good credit just because they have not used it or damaged it yet. This is not the case. The good news is there are easy ways to establish credit. I spoke with a client that asked, “Why do I need credit cards in order to buy a home?,” as she had no debt and did not want to get a credit card. The answer is you don’t. You can always save up and pay cash for a Phoenix home which many people sometimes do, however, if you are going to require a loan to finance your purchase you may have to consider the scenario from the lenders POV. If you were going to loan money to someone you will probably want to see that they have a history or managing debt responsibly prior to doing so in order to analyze the risk, i.e. the likelihood they will pay you back.

Establish credit as early as possible prior to when you plan on buying a Phoenix home

Establishing credit takes time. Having no credit does not illustrate you a.) know how to manage it or that b.) you will not abuse it.  You may have credit card offers come in the mail or when you go to your bank. It is ideal that you open three credit lines but no more with either your bank, department store, mail offer, etc. Most will come with a low or zero APR for the first year or so and of course you want the best rate and perks.  Instead of paying cash for things like groceries, gas, medicine, etc. just set your cash aside and use your card. Then when the bill comes pay it off with the cash you stashed. If you are going to carry a small balance vs. paying it off completely each month carry no more than 10% of the credit line for an optimal credit rating although paying it off each month in full is ideal. If you only carry a small balance and only buy things you would normally have to buy regardless, then you should be fine with managing your credit. In three to six months you should be on your way to having great credit to buy a Phoenix home.

Remember these 5 things when building your credit for buying a Phoenix home or any other purpose

  1. Make your payments on time every time or it will lower your credit score
  2. Always keep your credit card balance at 30% or less of your total credit line in the event you don’t pay it off in full each month
  3. Once you have a history request a credit line increase from at least one of your cards to be at 5K or more
  4. Don’t have more than 3 credit lines at any one time
  5. Don’t buy things you don’t need on credit, just buy the things you would buy anyway

Also it is important to note that it is a good idea to keep your cards for the duration. Don’t cancel one and hop to another just because they offer you a short term introductory rate. Try to negotiate the rates with the cards you have. Overall the length that you hold each credit line open will impact your score, i.e. the longer the better. This will in turn possibly get you better home loan rate when buying a Phoenix home and possibly a quicker approval process.

Many cards offer a cash back option. This means for every dollar you spend with the card (even when you pay the balance off in full each month) you will receive typically 1% or 2% cash back. So lets say you spend $2,000/month on groceries, food, gas, medicine, clothing, etc. you would have earned $40 cash back which is $40 more than you would have made if you bought the exact same items but just paid cash for them.

This post is not intended to be in any way a form or financial and/or credit counseling and it is advised you see a professional finance/credit specialist for further insight or questions regarding your credit prior to buying a Phoenix home. We have plenty of wonderful referrals!

I hope so far you are finding this 11 Steps to Buying a Phoenix Home Series helpful and I welcome any comments you may have below as we move through the series.

Realizing How Buying A New House – Advantages For Homeowners

Buying a home can be a fun and exciting time period. There may be lots of shopping and looking involved as well as different house options. A couple may be torn between a recent model home and an older resale property. To better decide, it is a good idea to know that buying a new house – advantages for homeowners is real. There are many good aspects to making the plunge into the new real estate market.

One of the advantages to buying a recent property, is that the home may take several months or years to create. That can give someone the time they may need to make financial plans and save the down payment. With an older home, the down payment has to be made at the time of sale. With most resale homes offering quick closings that doesn’t give someone much time to save. A new home can provide people with the time they need to put a large down payment down on the listing.

Picking a model home, can also allow a couple to pick how the house will look. They can pick everything from the brick color, to the floor type and accessories in the kitchen and bathroom. Choosing the materials and colors can be a fun and exciting experience for anyone to engage in.

When a new buyer walks into a resale home, they may see many areas for improvement. Things like the paint may be of older dated colors, the floor may be old and dated as well. The kitchen and bathroom areas may also feature older cabinets and color choices, leaving a new owner with expensive bills to get it into shape.

A new house also means that things will not need to be replaced as quickly. Newer homes come with new windows, roofs and furnaces. When a resale house is bought, these major things could go and need to be replaced. They are all expensive items that could add to the stress of owning a house and paying a mortgage.

Some people find that looking for homes is challenging. There are many neighborhoods, models to choose from and interior decorations. However, a new builder will actually let the new owner pick out what they want in their home. That can make the search a one stop shop for success.

Moving into a new residence, can give people peace of mind. They don’t have to worry about the expensive of unexpected repairs, and they also do not need to think about paying thousands to upgrade certain aspects of the house. They can just move in and enjoy living there.

Finding out about buying new homes – advantages for homeowners, will give a person the right information that they need. Before a person begins their home search, they may want to decide if they want a used home or one that has not yet been built yet.

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