Like all first-time homebuyers, you are probably wondering what you need to do before you find your dream home, or even before you get a mortgage! Read the five tips below to see what you should do before you start your homebuying journey.
1. Check Your Credit Score & Overall Credit Report
This can be one of the most important things to do in the home loan approval step. If there is something incorrect on your credit report you want to have the time to fix it! It is super easy to check your credit too. While there are many free sites to check your credit, we suggest using Experian or annualcreditreport.com. Keep in mind, however, that there is various credit score models used, and lenders may use a different model than what you find on one of these reports. However, these reports are a good indicator of your score, and of course, they can reveal issues within your credit profile.
2. Pay Down Your Debts.
Having too much debt can put you in a position of not being approved in the mortgage process. The less debt you have is a positive factor that can contribute to your overall ability to qualify and get approved for your dream home. It may also give you more purchasing power since the amount of debt you have is a factor that contributes to a lower interest rate.
3. Put Your Spending on Hold
If you make a big purchase, such as buying a car, this can bring down your credit score and the new debt will impact your DTI ratio, which will limit what you can afford. It would be discouraging to buy a car and then find out you can no longer buy your dream home because you are paying off your car and it affected your ability to qualify for a mortgage.
4. Avoid These Red Flags
Depositing cash into your bank right before you apply for a loan can be a red flag since it’s hard to trace and can’t be used as qualifying assets. Also, you want to make sure you have a stable job and try not to change jobs right before you apply for a mortgage. Lastly, make sure all of your assets are in your own account well in advance.
5. Think About How Long You Will Be in the Home
Determining how long you’ll be in the home can be an instrumental tool for getting your mortgage. For example, if you know you’re just buying a starter home, and have pretty strong plans to move in five years or less, considering a 5/1 adjustable-rate mortgage might be a better choice than a 30-year fixed. It could save you money on your monthly payment, which could be put toward the down payment on your move-up property.