By Liz Keuler, Editor – Readynest by MGIC

Is the current housing market just a little too hot for you to jump in right now? There are still steps you can take to get yourself mortgage-ready and be prepared to buy a house when the time is right.

Educate yourself on the process

The first thing to do when you’re considering a future home purchase is to make sure you understand the steps that go into qualifying for a mortgage and buying a house. Knowing what to expect will put you in a more confident position when you’re ready to take the plunge.

To start small, ask friends and family about their experiences. What did they wish they had known about buying a home in advance? As the editor of Readynest, a homebuyer education site, you would think I’ve heard it all, but I learn something new every time I talk to a recent (or not-so-recent) homebuyer.

Set aside some time to research the process online. The Consumer Financial Protection Bureau (CFPB) and HUD are great resources, along with Readynest, of course!

For a more comprehensive overview of the process, you may want to attend a homebuying seminar. Real estate agents, lenders and nonprofits often offer free sessions. You’ll have a chance to ask questions and get clarification on anything you might not understand. Or check with your state housing finance authority about local resources, including housing counseling agencies that may provide free or low-cost advice.

Get your credit in order

How’s your credit? Do you know your credit scores and what appears on your credit history? When you apply for a mortgage, lenders will use that information to decide whether they will loan you money, and at what terms. Generally, better credit means a lower interest rate on your mortgage loan.

Start by checking your credit score and pulling your credit reports. You’re entitled to a free credit report each year from the 3 credit bureaus (Experian, Equifax and TransUnion). Make sure the information you see there is correct – you have the right to dispute records that appear on your credit report in error.

If there’s room for improvement in your credit history, look for ways to build better credit over time. If you have don’t have much of a credit history, you may want to consider opening a new line of credit – but only if you use it carefully and conservatively. Most importantly: make sure to make all payments on time!

Set a goal and build your savings

Do you know how much you need to save to buy a house? Setting a goal can help you be more targeted about creating a budget and setting money aside for the upfront costs associated with buying a home.

So what can you afford? Your price range will depend on how much you can swing for monthly housing expenses, and how much you’re willing to fork over for a down payment.

Many folks have heard that you must have a 20% down payment – which just isn’t true. Now, it is true that if you put 20% down you can avoid mortgage insurance (MI). But MI is not the bogeyman many believe it to be. Yes, it often means an extra expense added to your monthly mortgage payment. But it also makes it possible for you to put less money down – which means you could buy sooner or afford a home in a higher price range. And in most cases, private MI can be cancelled once you reach 20% equity in your home.

If you’re willing to include MI in your transaction, you may be able to put down as little as 3-5%. Monitor real estate listings in your area to get a sense for local home prices, then play around with a down payment calculator to see how different home prices and different down payment levels would affect your monthly mortgage payment.

Once you have an idea of your home price range and how much you might put down, compare your goal against the reality in your savings. Is there a gap? Dust off your family budget (or create one if you don’t have one already!) and look for ways to maximize your monthly savings. Even small amounts can start to add up.

And of course, don’t forget that you may qualify for down payment assistance (DPA). When the time is right for you to truly wade into the homebuying process, with a head full of knowledge and a glowing credit history, make sure to search for DPA in your area.

One final piece of advice

A home is probably the biggest purchase you’ll ever make. It’s easy to get caught up in news about rising or falling interest rates and buyer’s or seller’s markets, but there’s no truly “perfect” time. Just keep your eye on the market, real estate listings, and your budget, and eventually the stars will align for you. Happy homebuying!

Liz Keuler is a marketing specialist for MGIC and the editor of Readynest, MGIC’s online resource for homebuyers. As a private mortgage insurance company, MGIC has been helping people afford homes with lower down payments since 1957.

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By Liz Keuler, Editor – Readynest by MGIC

It seems like a no-brainer, but the answer is actually, “Sort of – it depends.” I know, that’s not the quick answer you’re looking for.

A bigger down payment usually means more equity in the house right from the get-go, along with a smaller monthly mortgage payment. But while saving up for a large down payment is an admirable goal, there are many considerations to weigh when deciding how much is enough and when to buy.

You could save $5,000 a year for 40 years to buy a $200,000 house outright. No mortgage and no interest payments – after only 40 years of blissful renting (and rent increases), helping other real estate owners build their equity. Hooray! (Also, I’m not feeling great about how much house you’ll be able to buy for $200,000 in 2059.)

Of course, most people don’t take such an extreme approach to saving. But depending on how much you already have saved, waiting even just a few more years to buy can have financial implications beyond lost equity opportunities.

One example: appreciation

Home prices are likely to appreciate while you’re saving and waiting, and that could affect you in 2 ways: higher home prices and lost appreciation.

Let’s say you wait 5 years to buy that $200,000 house. At a 3% annual appreciation over 5 years (a conservative average estimate), that home would be worth $231,855. What you saved for a higher down payment is no longer worth quite so much as a percentage of the home price.

And had you not waited to buy, the extra $31,855 in appreciation over those 5 years would contribute to the equity you have in the home.

Other financial considerations

Appreciation and equity are big considerations, but there are many financial factors that might play a role in your decision whether to buy now or wait and save, including:

• Rent increases
• Other regular costs associated with renting, like parking and pet fees, laundry, and renter’s insurance
• Other regular costs associated with buying a home, like maintenance, taxes and insurance
• Closing costs
• Other saving goals
• The cost of new appliances, furniture or lawn care equipment
• Resale potential

Beyond the finances

You may have heard the advice that the decision to buy a house should be practical, not emotional. For the most part, I agree – emotions can get in the way of making a logical decision about whether a home is worth the price, for example.

But for most people, the decision to buy a house at all is at least partially an emotional one, and why shouldn’t it be? Your desire for stability, privacy, freedom to make changes and improvements, more space for family or pets, or just for a place of your own – that’s part of the equation. You may not be able to quantify it, but if buying a home will improve your quality of life, keep that in mind as you consider how long to wait and save.

Buying a home with a smaller down payment

After pondering and calculating (MGIC’s Buy now or wait calculator or Rent or buy calculator can help), you may decide it makes more sense for you to start your homebuying journey now rather than waiting.

Depending on how much you’ve already saved, you may want to take advantage of loans and programs that can help make your purchase more affordable. Down payment assistance, a conventional loan with private mortgage insurance, or a loan guaranteed by the Federal Housing Authority or VA are all options to research and consider.

By Liz Keuler, Editor – Readynest by MGIC

When you last accepted a new job, you probably researched benefits – everyone wants to know about health insurance, vacation time, the 401k match and whether or not there’s free coffee. But did you ask about employer-sponsored down payment assistance?

If it’s been a while since your employee orientation, you might want to check. You might be surprised – we were!

The assist we almost missed

When my husband and I started looking for our first home in 2012, down payment assistance (DPA) wasn’t really on our radar. That’s not too surprising: A November 2017 report from the Urban Institute indicated that 76% of consumers are not too familiar or not familiar at all with low down payment programs.

We got pre-approved, toured five homes and made an offer on a  sixth, one week after it went on the market. We already knew how much of our savings we wanted to use for a down payment (about 10% of the purchase price, so we were planning on financing the rest and taking advantage of private mortgage insurance).  We thought we were pretty set, down-payment-wise.

But fortunately for us, house-hunting is a great topic for workplace small talk. And at some point between the offer and the commitment letter from our lender, my husband’s work pal asked him if he knew about their employer-sponsored down payment assistance program.

We thought, “DPA, us? We can afford our down payment, so will we qualify?” But lo and behold: The home was within the program’s geographic boundaries, and we qualified for $3,500 of down payment assistance, forgivable over three years (as long as my husband stayed with his employer).

Every little bit counts

$3,500 may not seem like a lot of money to some people, but to us it was an extremely welcome buffer between closing costs and our remaining savings.

To quote 2012-me in an exclamation-point filled email to my husband (research for this post took me deep into my own email archive): “It will cover our closing costs, plus some of the down payment, so we should be able to get the essentials for the house without dipping too far into our remaining savings!”

Those essentials included a much-needed washer, dryer and dehumidifier. I think about that down payment assistance every time I do the laundry. (Or I would if I ever did the laundry – that’s my husband’s job.)

It doesn’t hurt to check

So if you’re thinking of buying a home, check with your employer to see if they participate in any down payment assistance programs. Even if you think your employer is too small, or you won’t qualify, it doesn’t hurt to ask – it’s one work perk that can really make a difference when you need it the most.

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