By Vicki Patterson
Buying a home is one of the most exciting, yet complex, processes you’ll ever experience. It’s an emotional journey, but the key to a successful purchase starts long before you even step foot inside a potential home.
The better prepared you are, the smoother your path will be when it's time to make an offer.
Before diving into house hunting, there are several financial habits and steps you should adopt to ensure you’re ready to take on homeownership.
Here’s what you need to know to get started.
1. Get Pre-Approved for a Mortgage
One of the first—and most important—steps in buying a home is securing pre-approval from a mortgage lender. This isn't just a formality; it’s a critical step that helps you understand exactly how much home you can afford. Pre-approval is different from pre-qualification, as it involves a more thorough examination of your financial situation, including your income, assets, debts and credit score.
Why it matters: A pre-approval letter shows sellers that you are a serious buyer and financially capable of purchasing their property. It also helps you narrow down your budget, so you don’t waste time looking at homes that are outside of your price range. Pre-approval can also speed up the process once you find the right home.
Vic's Tips: Shop around and get pre-approved with a few different lenders to compare rates and terms. It’s a small investment of time that could pay off in the long run.
2. Avoid Big Purchases or New Debt
One of the most common mistakes buyers make is taking on new debt or making large purchases while in the middle of the home-buying process. Whether it's buying a new car, making big furniture purchases or opening new credit lines, these actions can drastically affect your credit score and debt-to-income ratio—both of which are crucial factors in your mortgage approval.
Why it matters: Mortgage lenders review your financial history and any major changes to your credit or financial situation can delay or even derail your approval. Your lender needs to see that you are financially stable and responsible throughout the process.
Vic's Tips: Keep your credit usage as stable as possible during this period, and try to delay big purchases until after you’ve closed on your home.
3. Don’t Change Jobs
Job stability plays a significant role in the home-buying process. Lenders want to see that you have consistent income and employment history, as it indicates to them that you are likely to continue making timely mortgage payments after purchasing the home.
Why it matters: If you change jobs during the mortgage application process, lenders may hesitate to approve your loan. Even a short employment gap could raise red flags with your underwriter, delaying the approval or causing a rejection.
Vic's Tips: If you're considering a career move, try to wait until after closing to make any major job changes. If you absolutely must switch jobs, talk to your lender in advance to discuss how it may impact your loan application.
4. Save for a Down Payment
The amount you save for your down payment can have a significant impact on your monthly mortgage payments and your ability to secure the best interest rates. A larger down payment not only reduces your loan amount but may also help you avoid paying private mortgage insurance (PMI), which can add to your monthly expenses.
Why it matters: The more you can put down, the less you’ll need to borrow, and this can often lead to a better overall financial picture. For conventional loans, 20% is a common benchmark, but there are also programs that allow for much smaller down payments (as low as 3-5%).
Vic's Tips: If saving for a large down payment feels overwhelming, consider other financial products like down payment assistance programs or explore homes in more affordable neighborhoods.
5. Check Your Credit
Your credit score plays a major role in determining not only your eligibility for a loan but also the terms and interest rates you’ll be offered. Before you begin the home-buying process, it’s crucial to check your credit report and correct any errors you may find.
Why it matters: Even small errors on your credit report can affect your credit score and result in higher interest rates, potentially costing you thousands of dollars over the life of your loan.
Vic's Tips: You’re entitled to a free credit report once a year from each of the three major credit bureaus. Review them for inaccuracies or old accounts that may need to be cleared up before your mortgage application.
6. Stay Organized
Buying a home requires a lot of paperwork. Having all of your important financial documents ready and organized will save you time and stress during the process. Make sure you have your tax returns, pay stubs, bank statements and any other relevant documents at hand.
Why it matters: Lenders will need to verify your financial history to ensure you meet their criteria for a loan. The more organized you are, the faster the underwriting process will go, reducing delays.
Vic's Tips: Keep everything in a folder, either digitally or physically, so that you can quickly provide anything your lender requests. Being proactive and organized will help the process run smoothly.
Ready to Buy Your Dream Home?
Now that you know what to expect during the home-buying process, you’ll be more equipped to navigate each step with confidence. Buying a home is an exciting journey and I’m here to help make it as smooth and enjoyable as possible. Let’s work together to find your perfect home!
Ready to take the next step?
Contact me today to start your home-buying journey!
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