It’s been about a decade since the financial crisis that took down many of the nation’s biggest banks, but many of us are still justifiably cautious about borrowing money. If you’re interested in taking the plunge and getting a home loan, here’s how to prepare your finances before you purchase a home.
6 steps before you purchase a home
Find a mortgage that fits your financial situation: This is a big decision; read the fine print very carefully. There are huge benefits to be had in terms of equity and potential tax deductions, but these benefits depend on finding the best mortgage for you.
If you aren’t sure what the best choice is, it’s a good idea to have a long conversation with your mortgage lender. There are tons of options available. Do you want the predictability of a fixed-rate mortgage or the low rates of an adjustable mortgage? How much money do you think you will be making 1, 2, 5, or 10 years down the line? These are all important questions to ask.
If you can’t find a mortgage that makes sense for you, then it’s best to talk to a mortgage professional to see if they can walk you through the process, and find something that works for you.
Assess your student loan situation: Good news! Student Loans are now common enough that they aren’t necessarily a deal breaker when securing a mortgage. In general, mortgage lenders will see it as they do any other debt obligation. As long as you’ve used your student loans responsibly, you may still be able to secure a good mortgage. Talk to your mortgage lender about your debt situation if you are unsure.
Reduce debt-to-income ratio: Debt-to-income ratio is one of the main metrics mortgage lenders use when assessing eligibility for a loan. Before you purchase a home, try to lower your credit card debt as much as possible. If you can, talk to your lender about consolidating debts into monthly payments.
Hold off on borrowing: It’s best not to acquire any new lines of credit before you purchase a home. Don’t apply for any new credit cards or loans for six to twelve months before signing a home loan.
Assess yourself as a borrower: All of the metrics that banks and lenders use to determine your eligibility for loans are really about one thing: How likely you are to repay what you owe. Take some time to reflect on your borrowing behavior in the past. Have you been reliable with your payments? When finding a loan, it helps to take a moment to see yourself how lenders will see you.
Optimize your credit situation: If you want to get a good rate on your mortgage, a good credit score is extremely important. Many consumers have errors on their credit reports that can be easily corrected. For instance, you could be able to save money on your mortgage by doing something as simple as increasing your credit limit or changing some of your spending habits.
Before you start looking for a home loan, familiarize yourself with your credit report and try to find ways to improve your situation.
What many of these tips boil down to is a need to secure the facts. It’s best to know everything you can about your financial situation before you look for a loan. Talk to your loan originator, and they can help you save money on your mortgage. A good loan is a powerful asset – don’t settle for anything but the best.
Need help finding the right home loan for you? Megastar Redding is prepared to help.