1. Check your credit report
Here at MyBankTracker, we are always reminding our readers about the importance of knowing your credit score. Whether you are considering buying a home now or in the future, you need to know your score through all three major credit reporting agencies, Equifax, Experian, and TransUnion. Your credit score is the key to getting the best interest rate on a mortgage.
Once you know your score, you need to take care of it. If you find any errors on it, now is the time to get to work on fixing it by contacting the agency and providing the information they request. Whether your score is low or high, take all of the steps that you can to build it up: don’t apply for additional lines of credit, don’t close any accounts, and don’t make any big financial moves that could negatively affect your credit score.
3. Meet with lenders
Don’t wait until you have a house lined up to meet with lending banks, or be lulled into using the first one that comes along, or the one in cahoots with your real estate agency. A lender affiliated with an agency isn’t necessarily a bad choice, but like any great deal, it’s a very good idea to shop the market and see what is out there. Come armed with your credit reports printed out, and hold off on authorizing them to run a credit report as too much activity can negatively affect your rating. A lender can pre-qualify you for a loan without checking your credit.
Find a lender who is willing to explain the details of all the mortgage products they offer to you in clear, concise terms, and don’t be afraid to ask questions. Once you find the right lender, you can work with them to get pre-approved for a loan, which will involve running a credit check, verifying your employment, and other details. At that point, you’ll know what kind of house you can comfortably afford and what your payments will be, as well as how much you’ll need to have as a cash down payment.
4. Start saving for the biggest down payment you can afford
The higher your down payment, the better off you will be. A lower interest rate, a higher loan amount, better offers on other closing fees will all be yours if you go into the housing market with a beefy down payment. Funnel as much as possible into a strictly guarded savings account designed solely to house your down payment money. Make the goal a must, not a maybe.
5. Improve your debt-to-income ratio
You debt to income ratio is another important factor banks will consider before offering a mortgage. It’s the amount you make in contrast to how much you owe. If you can increase your income or reduce your debt, you are more likely to get a favorable deal. Try making bigger payments on any credit card or other loan debt to boost your debt-to-income ratio. You will not only be a better mortgage candidate, but you may also save some money on interest along the way.
6. Don’t make any major purchases
It might be tempting to start buying new furniture, upgrade the appliances, or make other purchases for your new home, but it is best to wait until after you’ve closed on your loan. Big purchases can affect your credit score and debt-to-income ratio if made on a credit card, and if they are purchased with cash, that money is best spent on a down payment. Wait until after you close the deal on the mortgage and you are in the house to start making big purchases.