Mortgage Advice

Buying a House in 2015: 3 Steps to Start Taking Now

December 22, 2014

Buying a home is exciting, and could potentially be the biggest purchase you will ever make. As with any significant life event, planning and preparation can provide a road map to a positive, stress-free experience.

If you’re considering buying a home within the next year, it’s important to get your finances in order. When you apply for a mortgage, lenders will take a snapshot of your financial situation, and the best thing you can do is paint a picture of stability. Here are three main factors lenders will consider during the application process:

  1. Your credit score. There are minimal credit score requirements needed in order to qualify for a mortgage. Also, for some mortgage programs, a higher credit score equals a better interest rate, so any actions you can take to improve your credit score will be beneficial.
  2. Your debt-to-income ratio. In order for lenders to make sure you have the ability to repay your mortgage, they use the debt-to-income (DTI) ratio calculation.
  3. The down payment. The higher the down payment you can make, the more equity you will have in your home and the lower your payment may be. Also, if you are able to put 20% down, you can avoid paying PMI (Private Mortgage Insurance), which is a set monthly amount added to your mortgage payment.

Knowing the information listed above, here are some steps you can start taking now to position yourself for a speedy pre-approval, a smooth home buying experience and get the best interest rate possible:

  1. Check your credit score. In addition to doing all that you can to improve your credit score, check to make sure there are no errors on your credit report. If you find any errors, file a dispute and contact the creditor to resolve the issue in question immediately. The best time to fix credit errors is before you start the mortgage application process. You should also maintain at least three open lines of credit, and avoid having any derogatory accounts for the past 12 months. If you’re thinking about buying a house and have questions about how to improve your credit score, contact us! We’ll be happy to provide you with a game plan you can use to get on the right track.
  2. Create a savings plan. Set a budget based on your current income and expenses to identify areas in which you can save a little extra money for your down payment. Discuss with your realtor about seller concessions. This negotiation tactic can be used to have a seller pay part of your closing costs. A gift of money from a family member is also acceptable to put toward your down payment and closing costs. And, remember to ask your loan officer about low-cost down payment options and assistance programs.
  3. Meet with a loan officer. It’s never too early to start building a relationship with a loan officer who can help you to prepare for the mortgage process. A preliminary discussion will reveal the types of loan options that are open to you, the loan amount you would qualify for and what kind of down payment will be required. If you come to the decision that now is the right time to buy, they can help you get pre-approved for a mortgage loan.

Thinking about buying a home in 2015? Get pre-approved now so you can start searching for homes as soon as the New Year starts. Send us a message to get started today!