First-time house hunters often rush into the homebuying process, excited by the prospect of putting down roots and obtaining a mortgage. Buying a home is an exciting experience, but it requires a lot of preparation – especially when financing comes into play.
Before you can start scoping neighborhoods and exploring online listings, take these steps to make sure you can obtain a home loan:
Keep an eye on your credit
All lenders review buyer credit histories before issuing home loans, NerdWallet found. They evaluate payment trends and check for high credit card and loan balances to calculate risk.
With this in mind, assess your credit and try to address any apparent weaknesses. According to the Federal Reserve, more than 40 percent of Americans are behind on their credit card payments. If you happen to fall into this category, try bringing your account into good standing before seeking out a mortgage. Additionally, avoid putting big purchases on your card before you begin house hunting.
Sometimes, even buyers with stellar credit histories run into issues. For instance, the big three credit-rating companies – Equifax, Experian and TransUnion – have been known to make unintentional errors and sometimes dole out incorrect scores, U.S. News and World Report relayed.
If you find that your score is abnormally low, contact the credit bureaus and request a reevaluation. Of course, you’ll need to provide documentation. Stay vigilant even after you’ve secured your home loan.
Know your budget
First-time homebuyers often envision purchasing the perfect property, featuring every amenity they can imagine. Obviously, such visions of grandeur rarely pan out. Still, plenty of house hunters bring these outsized expectations to meetings with loan officers and leave feeling disappointed.
Don’t ride this emotional rollercoaster. Instead, carefully review your total financial profile to see how much house you can realistically afford. Evaluate four key variables: your available funds, income, debts and expenses and credit history. Once you’ve nailed down these numbers, you’ll be able to work up a homebuying budget that fits your lifestyle.
As you navigate this stage, be prepared to make sacrifices, Investopedia advised. Giving up an extra bedroom or a few hundred square feet is worth it if you can achieve financial security and live comfortably.
Don’t make drastic changes
When lenders evaluate the financial situations of prospective buyers, they’re really looking for one thing: stability. They want house hunters with plans for the future, strong loan repayment histories and, most of all, steady incomes.
To help establish your reliability, it’s best to avoid making big life changes in the months leading up to and during the homebuying process. For instance, some buyers switch jobs amidst their ongoing house hunts. Of course, simply switching jobs isn’t normally a problem. However, in the eyes of lenders, this often denotes instability. Plus, such swaps mess up loan paperwork, skewing income numbers and loan amounts.