Perhaps you’re ready to buy a home for the first time. Maybe you’re ready to upsize (or downsize) from your current home. Either way, you’re planning to move. Whatever your reason, here are the 7 things you need to do first. Work your way down this list of things to do before buying a home, and you’ll have an easier time getting into the home you want at the right price.
1. Clean up Your Credit Score
Lenders will look at your credit score first. The better your score, the larger your loan will be. Lenders use it as one of the factors, along with income and current financial obligations, as they gauge how much of a house payment you can afford to make.
Start at least 6-8 months before you move. That way, you’ll have a good amount of time to work on your credit score. If you haven’t already, get your free annual credit report from the three major credit reporting agencies (Equifax, TransUnion, and Experian), and check it to make sure it’s accurate.
If you discover a mistake, immediately call the creditor involved. You’ll need to confirm your current info, and have them correct their data with the credit bureaus right away.
2. Cut Your Credit Card Debt
Are you one of the debt-free few? Keep doing what you’re doing. And if you have credit debt? You’re not alone. Even before you check your credit score, get your credit card spending under control. How you manage credit cards is a huge part of your credit score. Most of what we’re telling you in this article falls under the “advice” category. This one is the only one that we’d call “essential.”
Make a plan to spend less on credit cards than you can pay off every month. That way, you’ll be able to steadily pay down your balance and lessen your debt load. As you do so, your credit score will improve. Lenders will notice, and you’ll be able to get a better loan.
Guess what? Getting out of credit card debt will make your monthly mortgage payment less of a burden. You owe it to yourself to take control of your credit for a more secure future.
3. Solidify Your Savings Plan
If your budget doesn’t have a “savings” category, make one. Then, start saving for your down payment. A little at a time is better than not at all. Consider the amount of your loan, the percentage you’d like to put down, estimated closing costs, and moving expenses.
Making a larger down payment can put more money in your pocket every month through lower mortgage payments. Your savings could be hundreds of dollars a month. But that’s not all. In the long run, simply by paying off more principal at the beginning of the transaction, you’ll save many thousands through reduced interest.
(If you don’t have a budget, now’s your chance to make one. Budgets may feel restrictive, but staying out of financial difficulty is worth any brief inconvenience.)
4. Minimize Your Monthly Payments
The more payments you have, the less attractive your mortgage loan offer will be. Before you pursue a mortgage, put yourself on solid financial footing by lowering any monthly payment you can. Obviously, you still need to pay down your credit card debt. But, if it’s an option, see if you can pay off any car loans you carry. You’ll be glad you did when your first mortgage payment is stress-free.
5. Outline Your Options
You can always look at every single house on the market. However, you’ll probably find that narrowing your search will help to make your choice clear. Not only that, but it will also help you to understand your own desires and needs.
Even before you’re preapproved, make a list. This list will help to guide you as you shop for the right home, not simply any home you can afford.
Your list should include:
- Non-negotiable characteristics of your new home
- Features you’re willing to flex on
- Floor plans you prefer
- House style that makes you feel most “at home”
- Neighborhood needs
- Driving distance limits
- Personal and family considerations
6. Pursue Loan Preapproval
Preapproval is your first official step towards getting a new home loan. It can be exciting! Your preapproval tells you what size loan you can access and helps you figure out how much house you can afford to buy. It’s the first concrete evidence that helps you narrow your search.
Your loan preapproval also gives you or your agent a stronger negotiating position when you’re ready to make an offer. Sellers are more likely to accept an offer that is backed by a preapproval letter – especially one issued by a reputable lender.
7. Balance Your Budget
Don’t let your preapproval dictate how much you spend. Your budget should rule. It could be the difference between a comfortable mortgage payment and foreclosure. Set your mortgage budget at a number that allows you to meet your monthly expenses, discretionary spending goals (do you want to travel? spend more on food or entertainment?) with enough left over for savings.
For example, say your preapproval tells you that you may borrow up to $250,000. What if that number doesn’t work within your monthly budget? Adjust your mortgage amount to fit your budget, not vice versa.
This checklist of things you need to do before buying a home may sound intimidating. You may not know where to start. We’ve all been there. Lean on your agent and mortgage lender to help you through the process. Start with step 1 – and just do one thing at a time.
You’ll always know where you stand if you have a set list of priorities. And knowledge is power. Power to confidently make decisions. Power to choose the right home. And above all, power to improve your quality of life.
Are you ready to buy a home? Congratulations! Whether you’re a first-time home buyer or homeowner looking for change, apply today. We’d love to help you get to a better place.