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The ‘keys’ to homeownership

May 12, 2010

Courtesy of ARA Content

“It’s a buyer’s market” is a popular headline right now. It’s one that’s hard to ignore, especially if you’re a young adult or even a long-time renter who has been waiting for the right time to pursue the American dream of owning your own home.

Buying your first home can be scary, but as with anything else in life, the right preparation should bring you good results—a home you want and one you can afford.

Whether you are ready to buy a home in the next few months or next few years, preparation is critical.

Thrivent Financial Bank offers the following five “keys” to open the door to homeownership.

1. Obtain a credit report. Review your credit report prior to starting the home buying process. This will enable you to dispute any incorrect entries and satisfy any derogatory items on your report. You are entitled to one free copy of your credit report every 12 months. Ensuring your credit report is accurate is critical as it is an important element lenders review to determine your credit worthiness for a loan approval.

2. Establish a budget. Knowing where you spend your money and how much you are able to set aside each month can, first, help you decide if purchasing a house is a viable choice now or if it is something that will have to wait until later. Establishing a monthly budget also helps determine how much house you can afford, which will help you zero in on possible homes to look at. If buying the home you want is not in the cards now, use the opportunity to take a closer look at your spending and savings habits, and develop a plan to begin setting money aside for a down payment and monthly mortgage payments.

3. Secure a down payment. Although there are loan programs that will allow you to purchase a home with no money down, making a down payment is almost always a good idea. The most common sources of a down payment are your savings or a gift of cash. The amount you put down has a direct impact on what your monthly mortgage payment will be and will also determine if you will be required to purchase PMI, or private mortgage insurance.

4. Understand mortgage options. There are many types of loans available to suit your needs. The following is a list of some of the more common types of loans.

→ Fixed rate loan—The interest rate is fixed for the life of the loan. The life of a fixed rate loan may range from 10 to 30 years.

→ Adjustable rate mortgage (ARM)—The interest rate is fixed for a certain period of time, but once that period expires, your interest rate will adjust according to the terms of the mortgage.

→ Negative amortization (pay option) loan—The minimum payment is less than the interest that accrued on the loan. In this loan, your principal balance will increase when you pay less than the interest that accrued.

→ Balloon—The interest rate is fixed for a period of time. At the end of that period, your entire balance on your loan is due. (Example. With a five-year balloon, your loan is fixed for five years, and at the end of five years, your remaining balance on your mortgage is due.)

→ Interest only—The minimum payment is just the interest that accrues on the loan.

Also, get an estimated, hypothetical look at your monthly payments for the various types of mortgages by using the Thrivent Financial Bank mortgage calculators. However, these are not meant to replace professional financial advice.

5. Get pre-approved. Now that you have done your homework and are ready to purchase a home, you should meet with a personal banker to get pre-approved. A pre-approval allows the lender to review your situation and make recommendations prior to entering any formal purchase contract. The pre-approval will establish for you a limit on the dollar amount the lender will commit to your home purchase.

To begin this process, your loan officer will complete an application with you and will also check your credit report. After some analysis, your loan officer will inform you of the various programs and the amount you qualify for. They will also give you a pre-approval letter that you can give to your Realtor so they know the price range of homes they can show you.

To be pre-approved, you’ll need to submit the following to a potential lender:

→ Tax returns and W-2s for the past two years.

→ Pay stubs to prove you’re currently employed.

→ Documentation of other types of income, including investments or a second job.

→ Recent bank statements.

These preparations are just the beginning of your journey to homeownership. You’ll also want to do your homework for the next stages, such as selecting a Realtor, house hunting, putting in an offer and getting an inspection.

Buying a home is one of the biggest decisions you will ever make. In your pursuit of the American dream, make sure you follow the keys to success and enjoy this exciting journey.

Bank products and trust services are offered through Thrivent Financial Bank, (Member FDIC, Equal Housing Lender), a wholly-owned subsidiary of Thrivent Financial for Lutherans. Insurance, securities, investment advisory services, and trust and investment management accounts are not deposits, are not guaranteed by Thrivent Financial Bank, are not insured by the FDIC or any other federal government agency, and may go down in value.

From the May 12-18, 2010 issue

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