As you consider your upcoming home purchase, there are some preparation tips you can work on with your finances and your credit to make the home purchase process easier. When you apply for a mortgage a better credit score and income stability will make your loan search an easier one. Here are some tips to help you in your next home purchase and the preparation leading up to it.
Check Your Credit
As a buyer in the current real estate market, it is going to benefit you to make sure your credit is in the best condition possible when you start your search for a home. Your credit determines a big part of your ability to get financing for your home purchase and to make sure it is affordable. The interest rate on the mortgage you get is directly tied to the condition of your credit, so it is essential that you start out by checking into your credit beforehand.
Review your credit report online, which you can do for free once a year. There are three main credit bureaus that keep a credit file for you, and each one provides this free information to you as a consumer. Just be sure you review it early enough that you can dispute any errors and have them corrected before you apply for a mortgage. This can take several months, so starting early is key.
Also, look at your credit in terms of what is reporting correctly. If you have too much unsecured debt, such as credit card debt, this can adversely affect your credit score. Work to pay this down or consolidate it with a loan from the equity in a vehicle or pay it down by making extra payments or with an upcoming tax refund. The lower your debt to income ratio, the better off your chances will be with getting a great low-interest rate and good mortgage terms.
Talk to your realtor about any questions you have with the mortgage process and your credit score. Your realtor can also recommend a good mortgage broker to help you through this process.
Search Out Homes
When you have your credit prepared, you can apply for a mortgage to find out how much you qualify to borrow. This step is instrumental in establishing a budget for your home purchase so you can start searching for homes in the area within your purchase limit. As you start looking at homes for sale, keep in mind it may be helpful to leave a little wiggle room in your budget in case home repairs come up in the future or you have an emergency that requires you to use some of your extra funds.
For example, if you are pre-approved for a mortgage of up to $250,000, start shopping for homes around $200,000 to $230,000. Your mortgage payment will be a bit smaller in this home purchase, and you can still have extra income each month to put into a savings account or other expenses that will arise.
Buy luxury homes or single-family homes only after you're prepared.