Tips for Buying or Refinancing a House

A 2018 survey found that 40 percent of Americans consider buying a house “the most stressful event in modern life.” It’s natural to feel anxious about making such a large purchase, but a little advance planning can make the process a lot easier. 

Trevor Madsen should know. He’s been a loan originator for Unify Home Lending in Rapid City for two years now and has seen it all. This self-described “Loan Ranger” has a background in journalism and says there are similarities between that and mortgage lending. 

“Everybody’s got a story,” Trevor says.

“When doing loans for people, you sit down and listen to their wants and needs, what they hope to accomplish, and put the pieces together.”

Trevor has some helpful advice for those planning on buying a house. The most important thing a prospective homebuyer can do, he says, is track their spending. Little things are often overlooked, he warns. Recurring charges such as Netflix subscriptions, dollar shave clubs, and gym memberships that are automatically withdrawn from your account make it easy to fall into the “out of sight, out of mind” trap. Even seemingly insignificant purchases add up quickly when they become routine. Trevor cites the morning latte as a perfect example; if you’re paying $5 for a daily cup of coffee, you might end up spending over $100 a month. That’s no small amount when you’re trying to save up for a down payment. The key, Trevor says, is to live at or below your means. 

Equally important is paying your bills on time. Many of us are familiar with how quickly credit card debt can get out of hand; missing even a single payment can have a negative impact on your credit score. Too many people adopt the mentality that you only live once and if you want something, you should have it. Trevor’s take? “If you can’t pay for something right then and there, maybe you shouldn’t buy it.” After all, lenders will look at your credit score in order to determine whether you qualify for a loan. If it’s too low—generally, banks like to see a score of at least 640—there isn’t a whole lot you can do immediately. The higher your credit score, the better your interest rate will be, so adopting wise spending habits sooner rather than later can pay off for you when it’s time to look for a house. 

Trevor suggests sitting down and figuring out a budget three to six months in advance. Many people focus on paying off as much debt as possible before beginning the process, but he cautions that this isn’t always the best strategy. “Paying off a loan will absolve a line of credit and that’s a negative factor,” he explains. “Your credit score can take a ding.” You might be better off taking the same amount of money you’d use to pay off a car loan, for instance, and applying it toward credit card debt so you reduce your balance to no more than 30 percent of your credit limit. Other common mistakes to avoid when buying a home include taking on new debt, making an employment change, and fixating too much on interest rates, which are already at historic lows. A quarter-percent change in rates will barely cause a blip in your monthly mortgage payment; it’s likely you’d pay more in points to save what might amount to $10 a month. As long as you’re planning on staying in your house a long time, it’s simply not cost-effective to chase after a few dollars. 

There are a lot of puzzle pieces involved in buying a house, but help is available. Trevor and other lending specialists have financial simulators that allow customers to play around with different scenarios in order to develop a plan of attack that will help them determine the best ways to qualify for a loan. There is no “one-size-fits-all” strategy since everybody’s situation is unique; an experienced lender will provide the tools to get you on track, whether you’re buying your first home or refinancing an existing loan.

Don’t worry if you encounter a few bumps in the road during your journey. These are perfectly normal. “If nothing comes up, we call that a unicorn,” Trevor says. “More often than not, there are hiccups, even for super savvy people.” Most are easily resolved with documentation. For his part, Trevor actually enjoys these challenges. 

“It’s fun,” he says. “Like solving one big puzzle!”

Written by Mark Petruska