Buying your first home is such a rite of passage and it’s a benchmark of how far you’ve come. Whether you’re coming from your parent’s home or a small apartment, or even a rental, there is something very special about having the keys to your own place put in your hand. This process does require some planning though ahead of time in order to make it efficient.
Credit Reports & Scoring
Today’s loan programs are based off credit scores and that means you should know what is currently showing on your credit report. You can obtain a current and free copy of your report using online resources or by contacting each credit score reporting agency individually. With these in hand, you’ll be able to compare all three of them and make sure they are reporting correctly, currently and that none of them have any issues that should be disputed. If you do identify a problem area, contact the reporting agency to file a dispute, so they can research the item and correct it, allowing your credit score to be increased to its proper number.
Once your credit matters are being taken care of, then you need to review your current budget. It’s important to note that the lower your debt to income ratio is, the more likely it is you’ll be approved by the lenders. You can get this percentage on your own by using a spreadsheet to add up your current financial responsibilities and then adding on your proposed mortgage amount. Now, divide that number by your gross income monthly and you’ll have your current debt to income ratio. If yours is too high, take a look at what you can reduce and how you can scale back current debt, such as credit cards and other revolving accounts.
If you are coming from a rental home, then it’s helpful to prove how long you’ve been paying rent, to whom and in what amount. This will help you establish a history of regular payments each month in the form of a verification of rent document. By sharing this information, they will see how your current rent payment differs from your proposed mortgage payment, and what effect that is likely to have on your monthly budget. When they review this information, this detail helps them decide whether or not to approve your loan application.
The money you have in your checking and savings account is going to be listed on your loan application, and this will be verified by the lenders as they review everything you submitted. The longer you’ve had a larger balance in your accounts, the better it’s going to be. The term for this money is ‘seasoned’ and it shows that you know how to manage your dollars, without running the accounts down to zero every time you pay bills. If you have been saving up for a down payment, then this account is going to be great to show during the loan process. It’s going to have a positive effect on your application anytime you can show an account that regularly increases in balance every month.
Avoid New Debt
For those individuals that only have one or two credit cards, this is not the time to obtain more. It’s important to have as little debt as possible while your loan application is processing, and you don’t want to jeopardize your approvals by creating another bill. Pay your credit cards down to a zero balance and let them sit there without being used.
Consult with Experts
When you make the decision to buy a home, set up an appointment with mortgage professionals who work in the industry and understand what the market currently looks like. They can help you go over all these details and explain how your specific situation adds up. They will have excellent tips and advice to share on how you can make your loan application more attractive and what you need to be paying attention to. With the right preparation and financial help, you can become the proud owner of your new home, and these professionals can walk you through every step of the path.