If home ownership is on your list of goals for the near future, there’s a lot of red tape you’ll have to go through to make your dream a reality. But if you’re prepared for the journey that awaits, the transition from a renter to a homeowner can be a near-seamless one. Here are a few tips to keep in mind before moving forward:
Start saving
Even if you qualify for down-payment assistance through a first-time homebuyer program, you may incur expenses for closing costs. You also want to have funds set aside for moving costs and future fluctuations in income.
Use a mortgage calculator
Use an affordability calculator such as the one offered at Bankrate.com to come up with an idea of where you stand at the moment with your current income and outstanding debt obligations. And if the result is substantially lower than what you expected, manipulate the numbers to determine how much of an income increase or reduction in debts you need to qualify.
Determine your budget
Regardless of how much the affordability calculator indicates is feasible for a home loan, only you understand the extent of your monthly expenses and how much can comfortably afford. Since the lender doesn’t factor in the cost of other recurring expenses such as childcare, food, utilities and vehicle maintenance, you’ll need to do so to come up with a figure that best suits your needs.
Improve your credit score
Your FICO score will play a significant role in the pre-approval process and may determine the interest rate for which you qualify. For starters, you should access your credit report from a reputable site like AnnualCreditReport.com to confirm the contents and dispute any inaccuracies. Once you’ve done so, here are some other ways to give your score a boost:
- Make timely payments to show the lender you are capable of responsibly handling debt over an extended period of time.
- Get current on past-due debts.
- Pay down debts to improve your debt-to-available-credit ratio.
- Refrain from opening new accounts as it may indicate to lenders you are desperate for credit.
- Don’t shuffle debt around.
Search for a loan
There are thousands of lenders out there, but you’ll want to do your homework before selecting one and moving forward. If you’re just starting out, check with your financial institution to inquire about mortgage products you may qualify for, and speak with a mortgage broker to explore additional options that may be more ideal for your financial situation.
Get prequalified
Before making an offer on a home, you will need to be prequalified by a lender. In order for the financial institution to issue this document, be prepared to provide proof of income with paystubs (or tax returns if you are self-employed) and bank statements from the past two to four months. Your lender may also require additional documentation.
Remain vigilant of account activity
Depending on the lender and on the status of the home you select, the closing window could range from a few weeks to several months. During this window, it’s not uncommon for the underwriting department to revisit your credit profile before sealing the deal. After working so hard to attain that credit score you need to qualify, the last thing you want is a dip in your score as a result of identity theft or fraud.
Be sure to protect it with the help of a reputable company like Lifelock.com, which offers credit and identity theft protection. Most importantly, credit is crucial to attaining a home and it’s up to you to protect your good name.
Solicit the services of a reputable realtor
Once you’re ready to begin the purchasing process, visit Realtor.com or ask for local recommendations to find an experienced realtor. The realtor you select should also have a good relationship with local mortgage brokers and be equipped with the expertise to provide the guidance you need while searching for and making offers on homes.
