5 ways to improve your finances before buying a house
While the process can take time, the savings can climb into the tens of thousands of dollars. (iStock) Buying a house is a significant commitment, and if you’re considering getting into a home in the near future, you’re far from alone. According to the Mortgage Bankers Association, new home purchase mortgage applications grew 34.7% in November 2020 from the same month in 2019. Continue Reading Below But while mortgage rates tend to be among the lowest across all loan types, stretching your payments out over 30 years will result in tens or even hundreds of thousands of dollars in interest charges. To see what kind of mortgage rates you qualify for today, crunch the numbers via Credible's free online tools. Are you not satisfied with the mortgage rates you see? If so, don't worry — there are some ways you can improve your personal finances before signing any life-changing documents. It's crucial that you take the time to prepare your financial situation before you decide to buy a house. Doing so will not only make it easier to afford your monthly payments but also potentially reduce your interest rate. If you’re feeling stressed about your upcoming home purchase, here are five steps you can take to get your finances in order and improve your chances of getting an excellent deal. Your credit history is the most important factor mortgage lenders will consider when you apply for a loan, so it’s imperative to make sure you’re credit-ready for the mortgage process. You can check your credit score for free with Credible, which will give you an idea of where you stand. If your credit score isn’t where you want it to be, request a free copy of your report from each of the three national credit bureaus through AnnualCreditReport.com. With this information in hand, you’ll be able to identify which areas you need to address before you apply for a mortgage. HOW TO GET A FREE CREDIT REPORT In addition to your credit history, mortgage lenders will also review your debt-to-income ratio (DTI) to determine whether you qualify for a loan and how much you can afford. The ratio represents the percentage of your gross monthly income that goes toward debt payments. Once you’ve listed out your debts, look for opportunities to pay some off, which will reduce your DTI and improve your chances of getting the loan you want, and possibly even score a lower interest rate. While you’re working on paying down debt, visit Credible to get in touch with experienced loan officers who can provide expert insight. HOW CAN I BUY A HOUSE VIRTUALLY? There are programs, especially for first-time homebuyers, that allow you to get into a home with a low down payment or even no down payment at all. But the more money you put down, the less of a risk you pose to mortgage lenders, which can result in lower interest rates. While many experts recommend putting down 20% of the purchase price, you don’t need to save that much to make a difference. Multi-lender site Credible is always a great place to start if you're looking to save money. You can compare rates and mortgage lenders from the comfort of your own home and get a picture of your monthly payments and total costs. Look for opportunities to save money, either through cutting back on your monthly expenses, socking away bonuses from work and tax refunds, and more. Keep in mind that you’ll also want enough cash in reserve to pay closing costs and other upfront charges associated with buying a home and also to maintain an emergency fund in case something goes wrong. HOW TO GET A MORTGAGE DURING CORONAVIRUS Just because a mortgage lender tells you that you can qualify for a specific loan amount, that doesn’t necessarily mean you can. Instead of relying on what your debt-to-income ratio determines you can afford, write out all of your expenses to get an idea of what you can pay each month for a mortgage in addition to working toward other financial goals and maintaining the lifestyle you want. Use an online mortgage calculator to help determine how much your homeownership will cost you. You can also see what mortgage rates you qualify for by using Credible, giving you an idea of what your monthly payments and bills will look like. WHEN IS THE BEST TIME OF YEAR TO BUY A HOUSE? For about several months leading up to your first mortgage application through the day you close on your loan, it’s important to avoid applying for new credit cards or loans. Adding a new credit account to your file will not only increase your debt-to-income ratio, but it can also signal that you’ll have a harder time affording your monthly mortgage payment. So if you want a new rewards credit card or a personal loan for something else entirely, it’s best to wait until after your home loan has closed and you’re in your new house. Also, don’t forget to compare multiple mortgage lenders to make sure you get the best rates available. HOW TO WIN A BIDDING WAR WHEN BUYING A HOUSE According to Freddie Mac, mortgage rates for the week ending Dec. 31 hovered around historic lows: Visit an online mortgage broker like Credible to get personalized mortgage rates and get prequalified without impacting your credit score. HOW TO GET PRE-APPROVED FOR A MORTGAGE Source: Read Full Article
How to prepare to buy a house
1. Check your credit score and reports
2. List out your other debts
3. Build your cash reserves
4. Create a budget
5. Avoid new credit
What are today’s mortgage rates?