Buying a home is a significant step that often requires careful planning before moving in. The first critical step for any prospective home buyer is getting finances in order and organizing a financial profile. This something that needs to happen in advance so that you’re ready to purchase when speaking with a lender.
Learning how to prepare your finances can help secure your home loan and potentially lead to saving hundreds of dollars every month in repayments. Keep reading below to learn how you can prepare your finances before buying a new home:
Pay Down Your Credit Cards
Lenders are typically cautious if they find that you have substantial credit card debt and/or utilization. When both your debt to income ratio and your credit utilization ratios are high, it can mean a higher rate on your home loan or no home loan at all. It’s essential to start paying off credit card debt before you consider applying for a mortgage.
There are numerous benefits of paying off such debt including:
- Improve your credit score
- Save money on interest
- Demonstrate to lenders that you’re focused on repaying what you borrowed
- It’ll ease your bills and make it easier to pay a monthly mortgage payment
Understand What Lenders Look For
Do you know what lenders look for when deciding on a home loan? When applying for a home loan, lenders will want to review your ability to pay back.
The key things they tend to look out for include:
- A steady income, job length, and salary amount
- Available cash to serve as a down payment
- Taxes, closing costs, and other expenses – how will you manage these?
- It’s also likely that banking activity, as well as investments, will be brought up
To improve the likelihood of qualifying for a home loan, it is imperative that to save as much as possible. Both, for the down payment and so you have a little debt to income ratio.
Review Credit Reports and Identify Errors
When a lender or broker pulls your credit report, make sure you know what’s on it. Websites like creditkarma.com let you look at your credit report for free. In some cases, you’ll find errors or accounts on your credit report that don’t exist. If you find any errors, file a dispute and clean up your report as soon as possible.
Start Saving Before and After Approval
After making a down payment, your savings might significantly depreciate. It’s important to replenish your savings quickly in case of a home emergency. Practice good saving techniques before purchasing and keep those up throughout the entire home buying process and after moving in.
Not only will savings protect you in case of an emergency but it’ll also make it easier to apply for other credit, second home purchases, and refinancing in the future. You might be tempted to splurge on furnishings, electronics, and updates to your home, but try to limit monthly spending and never finance.
When you do spend, try investing in these first:
- roofing
- new appliances
- new windows and doors
- water heater
- hvac and cooling
- plumbing and bathrooms
These are common areas where emergencies tend to happen and also help improve the value of your home.
Now You’re Prepared
Before purchasing a new home, here’s some things to help you prepare your financial profile:
- Pay down your credit cards
- Understand what mortgage lenders are looking for
- Review your credit reports
- Start saving before and after approval
Do you want to learn more information about home mortgages?
Checkout our Mortgage Basics page or our FAQs section.
.
.
.
Preferred Mortgage Corp. of NY is a mortgage broker located in Rochester, NY.
We provided mortgage services throughout New York State including Rochester, Buffalo, Syracuse, Albany, and New York City. We’re also licensed to do business in Florida. Click here to contact us about our mortgage services today. Preferred Mortgage Corporation of New York – NMLS # 44812 Registered Mortgage Broker – NYS Department of Financial Services & Licensed Mortgage Broker Florida Office of Financial Regulation Loans Arranged Through Third Party Providers
