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Being Financially Prepared Is One of the First Steps to a Successful Home Sale

Owning a home is the quintessential American dream. But if you’re a prospective home buyer — especially a first-time home buyer — wading into the unknown territory of how to financially prepare to buy a house in Austin can feel more like a nightmare. You may find yourself asking questions such as: “How much can I truly afford?” “How much should I put down?” and “What’s the best type of mortgage loan?” The process of buying a house involves many steps, with step number one being getting your finances in order.

Austin is a great place to invest in homeownership, for many reasons. Even before you begin searching for a home in Austin, it’s important to get your financial ducks in a row. To help answer some of your questions and put you on the path to being financially prepared, we compiled our top tips here.

Check Your Credit Score

Knowing your credit score is an important first step to home ownership. That’s because, the better your credit history, the better the chances you’ll have of securing financing with the best terms and rates. Credit scores are also known as “risk scores” because they help lenders assess the risk that you won’t be able to repay the debt as originally agreed. If your credit score is high, lenders will see you as a low-risk investment and offer you a lower interest rate and other costs on your loan.

What’s considered a good credit score? A score of 800 and above is “excellent”; 740-799 is “very good”; 670-739 is “good”; 580-669 is “fair”; and 300-579 is “very poor.” Most credit scores fall between 600 and 750.

If you’ve found your credit score could use some improving, there are several steps to take, starting with paying down your debt.

Determine Your Budget

Figuring how much home you can afford is an important reality check you need to make. In addition to the purchase price of the home, other costs (closing costs, insurance, property taxes and maintenance costs) need to be factored in to your budget. Not to mention, car payments, utilities, food, clothing school loans, entertainment, etc.).

A general rule of thumb is to have approximately 30 percent of your gross monthly income (before taxes) set aside for housing costs — insurance, taxes and maintenance. You can also read our handy guide that features great budgeting tips for when you’re buying a house in Austin here.

Pay Down Your Debt

There are two main benefits to chipping away at your debt: The fewer monthly bills you have to worry about once you’re a homeowner, the better. We’ve all experienced the feeling of being able to get rid of an outstanding debt and it feels liberating. Decreasing your debt will also improve your credit score, which in turn helps secure a lower mortgage interest rate.

Save for a Down Payment

Down payments range anywhere from 3 percent to well over 20 percent, and often depends on how much you feel comfortable putting down. If you’re planning to take out a conventional mortgage, most financial experts recommend putting at least 20 percent down to avoid private mortgage insurance, or PMI — which insures the mortgage for the lender in the event that you default on your loan. Lenders occasionally offer conventional loans with smaller down payments that will not require PMI. You will have to have a great credit score to qualify for such a loan, and you will also usually pay a higher interest rate. Speak with an experienced loan officer who’ll explain the pros and cons of various loans as well as how much to put down.

Understanding the Different Types of Mortgage Loans Available to You

You’ll find many different types of mortgages available to home buyers. However, determining the best type of loan for your financial situation is perhaps one of the most daunting steps if you’re looking to buy a house in Austin. But with some research and the guidance of a loan officer, it doesn’t have to be. It’s important that you do some extensive research on various types of loans so you understand all of the risks associated with each option. The following are a few of the common types of mortgages:

Conventional Mortgage: is available through the two government-sponsored enterprises, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) which provide funds for mortgages to lenders. You can get Conventional loans at a fixed or an adjustable rate. A fixed-rate mortgage has an interest rate that remains the same for the life of the loan, while an adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance, varies during the life of the loan.

To qualify for a conventional loan, you’ll need a credit score of at least 620 and a debt-to-income (DTI) ratio of no higher than 50 percent.

VA Loan: is provided by private lenders, such as banks and mortgage companies. The Department of Veterans Affairs (VA) guarantees the loan, enabling the lender to provide you with more favorable terms. VA loans help veterans purchase a home at a competitive interest rate often without requiring a down payment or private mortgage insurance. Your length of service or service commitment, duty status and character of service is what determines your eligibility for specific home loan benefits.

FHA Loan: this is a government-backed mortgage insured by the Federal Housing Administration, or FHA. The FHA doesn’t lend money, rather, it protects lenders against losses if you default. This means borrowers who may not have great credit or who don’t have a big down payment have an easier time qualifying. Borrowers must pay FHA mortgage insurance, which protects the lender from a loss if you default on the loan.

Take Advantage of First-Time Home Buyer Perks

One good thing if you’re looking to buy a house in Austin, is that the city has a few first-time buyer programs that can assist with your down payment and possibly closing costs. According to the website, “The Down Payment Assistance Program (DPA) offers a deferred zero percent interest loan for eligible ‘first-time homebuyers’ to help purchase a home within the Austin City Limits.”  Visit for more information. You’ll also want to check out our First Time Homebuyers Guide for even more helpful information.

If you’re considering buying a home, your best bet is to meet with a mortgage officer or broker before you even start looking at property. These experts will sit down with you and can show you what all your costs are going to be. A good mortgage broker can also help you weigh your loan program options and help you decide how large a down payment to put down.

Once you’re ready to buy a house in Austin and you have your finances in order, contact one of our experienced Austin real estate agents. Habitat Hunters is ready to work with you every step of the way to find the home that meets your personal and financial needs. We can be reached by telephone: (512) 482-8651, email: or by filling out a quick online form.