Six tips to living the homeownership dream in 2016
Be prepared for changes in the home purchase process in 2016. Learn about resources available to assist you.
Home values are generally increasing at an annual rate of 4 to 5 percent, above the inflation rate, according to recent housing reports. That is good news for current homeowners watching their property values increase. But it means potential home buyers must come up with a larger down payment. Especially millennials who have been living with parents, have better job prospects and wages, and are thinking of moving out on their own. With mortgage rates still low and predicted to increase in 2016, this may be the year to plan on becoming homeowners before missing out.
Homeownership is one of the biggest financial decisions you make. The six tips from Michigan State University Extension for 2016 are:
- Affordability: Start considering your realistic price range. Your decision must include understanding the overall cost of the home plus the mortgage payment. Learn more at “Can I afford to buy a home? The Your Home Loan Toolkit has useful information and worksheets to use to do the math.
- Credit: Your credit score will also affect the type of loan for which you qualify. Most prime lenders look for a credit score of 640 or higher to get better interest rates. Buyers with lower credit ratings should look at FHA (government insured loans), USDA Rural Development loans, and Michigan State Housing Development Authority (MSDHA) loans, which are specific programs for low-income or first time homebuyers.
- Down Payment Assistance: Almost all mortgage loans now require a down payment. You may qualify for help with these funds. Talk to a loan officer or check out qualifications through FHA, USDA Rural Development, MSHDA lenders listed in the Credit bullet point above. Habitat for Humanity, and Individual Development Accounts (IDAs) may be additional resources.
- New Disclosure Forms: Residential mortgage loan applicants will see a new look in the disclosures because of a rule issued by the Consumer Financial Protection Bureau (CFPB) in late 2015. The "Loan Estimate" explains the costs and terms of the proposed loan in one form instead of the two previously required, and a "Closing Disclosure" summarizes the key terms of the final loan contract in one document in place of two.
- Estimate home value: Online sites offer free estimates of home values, such as Trulia and House Values. Look in the geographic areas and neighborhoods you are considering.
- Underserved areas: Fannie Mae and Freddie Mac have a duty to serve very low, low, and moderate income families in three specified underserved markets: manufactured homes, affordable housing preservation, and rural housing. More guidelines from the Federal Housing Financing Agency will be coming.
Another good idea is completion of a certified home buyer education course before the loan closing. This education actually is required by some mortgage programs. Local housing counseling agencies who offer this education may be aware of federal and state funding opportunities as well as down payment assistance programs. The pre-purchase education courses may be free or low cost. Visit MI Money Health, the U.S. Department of Housing and Urban Development (HUD) Office of Housing Counseling to find your local housing counseling agency or look up your state online.
Be prepared for the home purchase process in 2016. Making financial decisions takes time, patience, and discipline. Many resources are available to assist you.