If you want to make 2019 the year you buy a home, you have to start getting ready now. The earlier you prepare, the better your chances of securing a loan approval will be. The steps below are steps you can take right now to help you be the most eligible borrower there is in 2019.
Check Your Credit
The first thing lenders are going to look at when you apply for a loan is your credit. They do this before they even talk to you. They want to know your level of financial responsibility. Do you want that first impression of you to be good or bad? If you haven’t looked at your credit in a while, you might not know what state it is in, so now is the time to find out.
Head here and get a copy of your credit reports. We recommend pulling the reports from all three bureaus so that you have a full picture of your credit status. You are eligible to receive a copy of your credit report from each bureau once per year, so after this, make sure you keep pulling your credit reports on an annual basis to make sure you are on track.
When you look at your credit, look for the following:
- Do you have any late payments? If so, now is the time to bring the current and to stay current on them.
- Do you have a lot of credit card debt? If you have more than 30% of your available credit outstanding, it can bring your credit score down. Try paying your credit card debt down or off so that you can help your credit score increase.
- Are there any errors on your credit report? If so, you need to write to the credit bureau and the creditor reporting the information. Make sure to include proof of why the line item is wrong so that the credit bureau can fix it should they side with you.
- Do you have any collections or judgments? You may have to pay those off before you close on a mortgage loan. If you can take care of them now, it may be best to do so.
Look at Your Savings
Do you have savings already for a down payment? If not, now is the time to start. Even if you have money set aside, it might not be enough. At a minimum, you’ll need 3.5% of the home’s purchase price. But it’s ideal if you have at least 20% of the home’s purchase price. Most people fall somewhere in between those two numbers.
Take this time to come up with a savings plan. How will you actively grow your savings so that when the time comes next year, you’ll have a good sized down payment? Make a weekly, monthly, or even daily plan and stick to it.
Figure Out Your Budget
Now you have to figure out how much home you can afford. You can use one of the many online mortgage calculators, but you’ll also want to see how the payment looks in your actual budget. You need to see ‘in real numbers’ what you can afford.
If you get a prequalification from a lender, they will give you the maximum amount that you can afford. Just because you can afford that on paper doesn’t mean you can afford it in real life, though. Look at the payment; put it in your budget. Is it too much? Are you comfortable with it? These are questions you must ask yourself.
Remember, you are not obligated to take the full mortgage that a lender offers – you can take a fraction of it if that is all you are comfortable taking. You are the one that has to pay the mortgage after all.
Increase your income
If you decide that you don’t have enough income to cover the payment you need/want, it’s time to increase your income. Think about taking on a part-time job or turning a hobby into a side-gig. If you plan to use this income to help you qualify for a larger loan, you’ll need it for at least 12 months before a lender will consider the income, so keep that in mind.
If you increase your income temporarily, just to boost up your down payment, that could help your situation too. The more money you have to put down on a home, the less money you have to borrow from the bank.
Make a List of Priorities
Before you even start shopping for homes, you need to know what you want/need. Start with your list of needs. What features can you not live without in a home? For example, how many bedrooms do you need to fit your family? What size kitchen do you need to accommodate everyone? Do you entertain a lot? If so, you might want a slightly larger kitchen to make room for everyone.
Once you have your list of priorities, you can add your wants. These are the things that you can do without but that you would like on a home. Put them in order of priority with the top of the list being the things you want the most and the bottom being the items you can do without but wouldn’t mind having.
Start Your Research
Once you have a good idea of what you want, it’s time to do your research. How many homes are out there that meet your criteria? Start researching those neighborhoods. Are they areas you would consider living? Are they good for children? What are the schools like?
How often do homes like you want go up for sale? Is there a high demand for these houses? Do you have a specific area you want to live?
Once you know the answers to these questions, you can ‘stalk’ the internet to get information on potential homes. You can track their progress, see how they end up and then you’ll have ideas on how you should proceed when 2019 comes and it’s your turn to buy a home.
Preparing yourself to buy a home next year start now is a great move. This way you know you’ll be financially prepared for what comes your way. Doing your research, knowing what lenders require and what you can afford can put you paces ahead of other buyers just starting out next year.