5 Tips to Prepare for a Mortgage

Buying a home is one of the biggest investments and commitments that you’ll make in your lifetime. As you prepare to purchase your first (or even second or third) home, you need to establish a solid savings plan along with good spending habits. Below are five tips on how to better-prepare for a mortgage.
  • Put Together A Realistic Budget 
    Creating a monthly budget is a great way to save for a down payment on a home while also giving you a better idea of how much you can realistically spend on a monthly house payment.

    • The general rule of thumb is that a household should spend no more than 28% of its total monthly income on housing expenses. Another recommendation is that the household should spend a maximum of 36% on all of their debt, combined. Knowing this, and these numbers, should help as you begin to plan a budget that doesn’t break the bank and leave you financially distressed.

    • Budgeting is a great way to get in the habit of paying a large monthly payment. A great place to start would be by putting an estimated house payment into a designated savings account each month to help you save up for a down payment, while also getting you into the habit of spending $XXXX each month (with money set aside for additional housing expenses that may pop up along the way).
As you sit down and begin to write out your budget make sure to include all of your monthly bills, estimated costs for gas and groceries, and a designated amount of expendable income for eating out/entertainment.
  • Save Up For a Down Payment
    Most financial institutions recommend saving at least 20% of your total estimated mortgage when buying a home.

    • The more money you have to put toward a down payment, the lower your interest rates and monthly payments. This can take months, even years to accomplish; which is why is important to start saving early when considering buying a home.

    • Another option is to apply for an FHA loan. These loans, insured by the Federal Housing Administration, are strictly reserved for first time home buyers. They allow lower down payments (3.5%) as long as you have a 580+ credit score. You can still qualify for an FHA loan if your credit score ranges from 500-579 if you have 10% down. Mortgage insurance is required for these types of loans, but it makes buying a home more affordable for those who aren’t capable of saving 20% of their total estimated mortgage cost.
  • Pay Off Your Debt
    Before diving headfirst into a heaping new pile of debt, you should begin working to pay off your smaller loans to help cut back on your monthly costs. A great strategy to apply here is the debt snowball technique taught by personal finance guru, Dave Ramsey.

    The Debt Snowball 
    • This strategy revolves around paying off your smallest loans first while continuing to make the minimum payments on your larger debts. As you pay off each loan, you will then redirect or “snowball”, the funds you were spending toward your next loan on your list, with each payment getting larger and larger without changing your monthly living costs. This strategy may not save you on interest, but it helps keep you motivated to tackle each loan.

    • Think of it this way: Say you have a car loan for $12,000 and a total of $40,000 in student loans. You would dedicate as much of your expendable income as possible toward your car payment ($300/month) until that loan is paid off while still making the bare minimum payment of $400 on your student loans. Once your car is paid off, you would then pay a total of $700/month of your student loans until those are completely paid off.

    • The debt snowball technique is just one of the many strategies used to pay down your debts. Do your research and find one that works best for you. Keep in mind that as you pay off each loan your credit score will change. Some debt can be used to your advantage when it comes to building your credit score (see below).

  • Build Your Credit Score
    Your credit score has a major impact on your ability to finance a home. The higher your credit score, the lower your interest and monthly payments will be

    • Lenders look at your credit score as a way of analyzing whether or not they can trust you to make monthly payments. It is important that you are familiar with your own credit score and that you work to improve your credit score in the months leading up to applying for a mortgage.

    • Make sure not to close any of your current accounts during the same calendar year that you plan to buy a home, as this can drastically affect your score. Be sure not to sign or co-sign for any other major loans during that time, as well. Reach out to a bank mortgage loan officer at Farmer’s Bank for more information on ways to improve your credit score. Contact us at 208-734-1500 or contact us online.

  • Last but not least… Do your homework & be realistic with your goals

    Don’t rush into a mortgage just because you’re in a hurry to close on a home. Be sure to look into different lenders and options to make sure that you get the best deal possible - you’ll be making payments on this mortgage for a good portion of your life so make sure to take your time and do your research. Understand the difference between a 15- and a 30-year mortgage while also double-checking on prepayment penalties to ensure you don’t get penalized for paying your mortgage (or any other loan) off early.

    Realistically set a time frame that you aim to accomplish these tasks so that moving forward you’ll be set up for success. The more upfront you are with your goals and expectations at the beginning of the process, the better off you will be five years down the road when you’re in the smack-dab in the middle of it all.
For more information reach out to our mortgage specialists ,call us at 208-734-1500, or contact us online.

Financial Habits to Help Build your Credit Score

We live in a world that demands good credit. If you want to finance anything - be it a car or a home mortgage - you have to have good credit. Whether you’re trying to raise your credit score due to prior derogatory marks on your account, or you’re starting from scratch with little-to-no credit history; these tips and tricks are proven strategies to help raise your credit score wherever you’re at in life.
  • Know What Your Credit Score Is (Weekly and Annual Reports): There are free credit monitoring apps and services that you can use to check your credit score weekly and annually. Both Credit Karma and TurboTax are great resources to give you good perspective as to what your credit score looks like on a week-to-week basis. Weekly monitoring is a great way to catch little mistakes and stay up-to-date on all of the changes happening on a weekly basis. You should also take advantage of the opportunity to request your full credit report one time per year without having an affect on your score.
  • Dispute Inaccuracies: As soon as you come across a red flag that there was a hit on your credit, dispute it. A missed payment that wasn’t truly missed or an account opened under your name by somebody else can take a serious toll on your credit score. That is why it is so incredibly important that you dispute any mistakes that you find as soon as they arise. At the end of the day, you are solely responsible for your own credit health.
  • Pay Your Bills On Time (Or Before They’re Due): While there are multiple factors that affect your credit score, payment history is the most important of them all. Making up 35% of your FICO credit score, missing a single payment can be detrimental to your credit health. These marks can leave lasting impressions on your credit report for up to seven years. The best way to prevent this from happening altogether is by setting up automatic payments that are scheduled to go through before your bill is due. This will ensure that payments are made on time, and will boost your score even more by paying before the initial due date. Making multiple payments throughout the month is another great way to score extra points on your report, as well.
  • Take Out A Secured Loan or Credit Builder Loan: Creditors want to see that you’re utilizing your credit and making monthly payments. By taking out a secured loan, you are putting up collateral to back the loan to ensure creditors that you’ll be making payments on time. You can either use the loan to pay for something you currently need, or save it to repay the loan monthly to guarantee that you’ll have the funds to do so. A Credit Builder Loan is another great option because you will essentially get all of your money back once the loan is paid off. The money you put toward the loan goes into a savings account so that when it is paid off, a large percentage of it is returned back to you while simultaneously raising your credit score in the process - it’s a win-win.
  • Apply For A Secured Credit Card: Secured Credit Cards are different from regular credit cards because you place a refundable security deposit on the card that acts as your credit limit. This guarantees that you will never spend more than you already have, but allows you to raise your credit score in a safe and practical way. Some secured cards even offer rewards programs as an incentive to sign up and utilize them.
  • Keep Unused Accounts Open - Just Freeze Them: If you have older accounts that you don’t use anymore, push the pause button on calling to close those accounts. Instead, cut up the card and ensure you’ve paid off your entire bill before essentially forgetting about it. Letting your credit accounts age is a great way to raise your credit score over time while keeping multiple lines/forms of credit open looks great on your FICO report. On the other hand, don’t try to open six accounts in a single calendar year. The more hard inquiries you have on your account, the lower your score will drop. Spread out larger purchases to give your credit score a break.
  • Keep Total Debt Below 10% of Total Available Credit: Your total available credit is the credit limit on all of your accounts. For example, if you have five cards with $2,000 limits on each card, then your total available credit is $10,000. Therefore, you should keep less than $1,000 total on your cards to maximize your credit utilization score.
For more information on ways to improve your credit score reach out to us at 208-734-1500 or contact us online.