If you are thinking of buying a home in the next year, there are a few things you can do to make sure you are ready to start the process. Before you talk to a lender or hiring a Real Estate Agent, work on following these simple steps to keep your financials in top top shape.
1. Check your credit
Your credit score can have a significant impact on your ability to buy a home. A low credit score can negatively affect how much money a lender is willing to loan you, as well as your interest rate. Just a few percentage point differences in an interest rate can cost you thousands over the life of a loan. Monitor your credit closely, especially for fraudulent activity, to prevent any surprises that could delay the loan application process.
If you’re unsure of your credit score, many financial websites offer credit score monitoring, or you can get a full credit report once a year.
2. Build a solid credit history
One of the first things a lender will look at is your credit history. Lenders like borrowers who have a history of paying off debts, like credit cards, on time because it signals that you’re less of a risk and a responsible borrower.
If you don’t have credit, securing a home loan may be significantly more challenging and time-consuming, but not impossible. Records of paying rent and utilities on time, as well as student loan debt or cell phone bills, can help show a potential lender that you have a history of managing monthly payments.
3. Avoid large purchases
Avoid taking on large amounts of debt — whether it’s buying a car or planning a large vacation — before buying a house, even if you’re already preapproved.
Your debt-to-income ratio, or how much money you make compared to how much debt you have, can significantly affect how much money a lender is willing to give you. Keeping debts to a minimum can help make the home-buying process go a lot more smoothly.
If you do have debt that needs to be paid, talk with your lender first. The order in which you pay off debts, and exactly how much to pay, is an exact science and should be mapped out strategically.
4. Don’t shuffle money around
When you apply for a mortgage, you’ll need to provide several months of bank statements for your checking and savings accounts. “If you suddenly shut an account or have a large transfer from one account to another, then you’re going to have to paper-trail that whole account too,” says Warren. “Leave your money and your accounts the same for at least three months. It won’t disqualify you but will make a paperwork hassle.”
5. Avoid job hopping
Employment history and income are two of the biggest factors lenders look at when evaluating a mortgage application. A new job may be a good career move, but if you plan to buy a home in 2019, know that it can be a red flag to some underwriters — especially if you’re moving to a different industry.
A steady job history and few or no gaps in employment over the past two years are ideal, as it helps lenders more easily forecast your future income. If you do get a new job while home shopping, let your lender know as soon as possible. It doesn’t mean you won’t qualify for a mortgage — just be prepared to show extra documentation.
Content provided by: Zillow.com
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