Steps to Take Before Buying a Home
How Can I Make My Credit More Appealing to Lenders Before I Buy a Home?
Looking for a mortgage? Want to get the lowest rate possible? Here are some steps you can take to ensure your credit is at its best.
Credit Dos and Don’ts
- Do you miss credit card or student loan payments? Stop!
- If you’ve missed bill payments, catch up. Paying your bills on time will begin to improve your score.
- Don’t avoid debt, but make sure you make your regular monthly payments.
- Don’t have any debt? Get a credit card or car loan to begin building your credit score.
- Don’t try to game the system by opening new credit cards to expand your available credit.
Get Ready for the Down Payment
- Start saving for a down payment as soon as possible.
- Although you may be able to put down as little as 5% on a home, there are many benefits to putting down 15, 20% or more.
The Benefits of a Large Down Payment
- Most banks won’t require you to get Private Mortgage Insurance (PMI) if you put down 20% or more, which can significantly lower your monthly payment.
- The more you put down the lower your principal, meaning you’ll accrue far less interest over the term of the loan.
- Similarly, the more you put down the less you have to pay off, meaning you may be able to pay it off faster and even cut years off your loan term. Rather than taking out a loan for 30 years, you can take a 15-year loan and pay much less in interest.
Other Important Considerations When Beginning the Home Buying Process
- Think honestly about what you can afford. Although you’ll often hear people say you shouldn’t spend more than 30% of your income on housing, many economists today dispute that figure as arbitrary. Factor in your lifestyle and how much you’d need to budget for emergency repairs, like a broken A/C or water heater.
- Start listing neighborhoods of interest and home features you desire before you even begin your search in earnest. It can help to make a list of wants and a list of must-haves to further hone your home desires.
Lastly, make sure you get preapproved for a mortgage. Many real estate agents won’t even work with home shoppers who aren’t preapproved for a home loan. Preapproval also gives you better negotiating power, as you can put a hard upper limit on your offers.
Not Sure Your Credit Is Good Enough to Qualify for a Home Loan? We Can Help.
If you want to realize your dream of homeownership but are concerned your credit isn’t good enough to qualify for a loan due to outstanding debt, contact American Financial Solutions at (888) 282-5844. We would be happy to discuss paths to lowering your debt!
Published Jul 20, 2017.