How to Prep Your Finances to Buy a Home in New York City

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    To buy a home in New York City, you’ve got to bring your A-game—which means it’s time to give your financials a checkup to make sure they’re in great home-buying shape.

    Your credit score: Why this little number matters a lot

    Your credit score, also called a FICO score, is a numerical representation of how well you’ve paid off past debts. Lenders use your credit score to gauge the odds that you’ll pay them back, too.

    Credit scores range from 300 to 850—the higher the better. If your score’s high, lenders will likely reward you with a great interest rate; if your score’s too low, they might not give you a mortgage at all. (Bummer.)

    According to Heather McRae of Chicago Financial Services, a 620 is the minimum score you need to qualify for a conventional mortgage. For an FHA loan, that number can go as low as 500.

    Not sure what your credit score is? You can check your credit history at, and get the numerical score for a small fee. But first check with your bank or credit card company; a lot of them (including Capital One, Discover, and Bank of America) offer you a free credit score.

    What if your credit score isn’t so hot?

    Don’t panic. There are things you can do to bring your credit score up to where you need it to be. Here are four ways to improve your credit score:

    1. Fix any errors. First of all, if you see any errors on your credit report, contact the credit-reporting bureau and see what steps you need to take to fix the mistake.
    2. Scrub little mistakes. If you have just a few overdue bills on your report, try contacting the companies you were late paying. Sometimes they are willing to remove the black mark, especially if you’ve shown a history of paying on time otherwise.
    3. Pay down debt. You want to shrink your debt as low as possible.
    4. Pay bills on time. You have 30 days to pay a bill before it hurts your credit score. Pay everything on time for a few months, and you should see an improvement.


    How much do you need for a down payment?

    A down payment is a chunk of cash you pay upfront when you’re buying a house. Most conventional loans require buyers to put down at least 5% of the purchase price of the home. However, lenders prefer buyers with more skin in the game, so if you can swing it, you should try to put down the gold standard: 20%. So on a $500,000 home, your down payment would total $100,000.

    Ouch, right? Who has that kind of dough lying around?

    Granted, you can put down less, but there are such downsides as the following:

    • You’ll have to pay an added monthly fee called PMI, or private mortgage insurance, which amounts to anywhere from 0.3% to 1.15% of your home loan.
    • A 20% down payment will typically fetch you the very best interest rates banks have to offer.
    • Some buildings, namely co-ops, have down payment rules for buyers, requiring 20% or even 25%.


    I bought my first apartment with 16% down because that’s what I had—and no, I didn’t love that extra hundred dollars a month I paid in PMI. But after a few years of paying my mortgage, I was able to refinance with 20% equity and lose the extra payment. So, even if you have less than 20%, don’t let that discourage you from forging ahead.

    The post How to Prep Your Finances to Buy a Home in New York City appeared first on Real Estate News & Insights |®.

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