Do you want to buy a home? Congratulations! Homeownership is something that many people have worked towards for years. It can be one of the most rewarding decisions in your life.
However, there are also some things that you need to prepare for before taking on this big financial commitment. So here are steps to prepare to finance a home and get started on the right foot with your new mortgage company.
Take Care of Your Credit Report
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Your credit report refers to lenders’ research to see whether you can repay your loan. Lenders use this information, along with their criteria, when determining how much money they will lend and at what interest rate.
Credit scores can range anywhere between 300-850. The closer the score is to 850, the better it reflects on the consumer’s creditworthiness so it is best to keep yours high. Of course, it’s always best to check your report annually for inaccuracies or negative marks.
You may not know about them because only creditors listed in your file have access; however, these marks will still negatively affect potential lenders’ decisions even if you weren’t aware of them before applying for a mortgage. Also, be sure all accounts are up to date and open. Closed accounts will stay on your report for up to seven years, but they are still included in calculating your credit score.
Negative marks can also be removed after some time (typically between six months – two years) if you make on-time payments, which is excellent news. It may seem tedious at first, but checking up on it once or twice annually will help keep things running while saving you time later down the road when searching for that perfect property.
You can follow the following steps to ensure you have a clean credit report and credit score:
- Open a checking and savings account in your name (if you haven’t already).
- Pay off any outstanding debt (credit cards, car payments) to avoid further interest charges or fees. If you can’t pay it all at once, try making more than the minimum payment every month until it’s paid off.
Ensure that monthly bills are being paid on time so as not to cause late fees for services such as cable television, phone service, and internet. Late rent could also be recorded on your report if it isn’t up to date, reflecting poorly upon your ability to repay other debts. Try setting up automatic debits from a bank account or use online bill pay options offered by each company—this is typically free of charge.
It’s also a good idea to request a copy of your credit report from all three credit bureaus (TransUnion, Equifax, Experian). You can request a copy of your credit file from each bureau once per year or you can follow the steps laid out by the Federal Trade Commission (FTC).
The better you take care of your credit report, the easier it will be for you when financing a home in the future.
Consider Income and Expenses
When you prepare to finance a home, it is essential to look at your income and expenses.
You want to make sure that buying a home is the best decision for you financially. Look at how much money you have coming in each month and then compare that to how much money you would need to spend on a mortgage, taxes, insurance, and other monthly expenses related to owning a home. If your income can cover all of those costs comfortably, then buying a home may be the right choice for you.
If buying a home doesn’t seem feasible based on your current income and expenses, it may be an excellent time to consider if there is any room in your budget for you to save up and pay down debt. If so, then doing those things would put you on the right track towards buying a home.
Therefore, to determine how much money should go towards paying debts each month and saving for a down payment, it’s helpful to know what limits are associated with different types of mortgages. It can also help you understand which type of mortgage makes more sense financially.
Want to know how much house you can afford? Check out Omni Horizon Real Estate’s Home Affordability Calculator and crunch the numbers.
Save Up a Down Payment
Down payment requirements vary depending on the type of loan you get. For example, you will need to put down at least 20% for a conventional loan. However, you only need to put down as little as three and a half percent for an FHA loan.
No matter which type of loan you go with, saving up your down payment is essential before buying a home. This will help ensure that you have enough money saved up to cover your closing costs and other initial expenses.
If you are having trouble saving up your down payment, there are some things you can do to help:
- Set aside money each month into a savings account specifically for your down payment.
- Sell items you no longer need or use.
- Take on extra work or get a second job.
- Cut back on nonessential expenses.
Learn Your Mortgage Limits
Your mortgage limit refers to the maximum amount of money that a bank is willing to loan you to purchase a home. This limit is based on your credit score, income, and other debts that you may have. Before starting the home buying process, it is essential to know your mortgage limit to don’t apply for mortgages above your budget.
Mortgage pre-approval is a great way to determine your mortgage limit and how much you can afford to spend on a home. During the pre-approval process, a lender will evaluate your credit score, income, and debts to determine how much money they are willing to loan you. This information will help you narrow down your search for the perfect home within your budget.
Preparing to finance a home is just one step in the home-buying process. Get expert advice on how to prepare to buy a home now.
Count on Omni Horizon Real Estate When You Are Ready To Buy
You can count on Omni Horizon Real Estate to help you when you are prepared to finance your next investment. Our friendly team of real estate agents is ready to walk you through the home-buying process from start to finish, so you’ll rest easy knowing a strategic partner is on your side.
The real estate market is always changing. Let Omni Horizon Real Estate guide you through the waves to change to help you when you’re ready to buy. Contact us today.