If you’ve made plans to buy a home in the next year, there are some things you must do now to prepare. The more prepared you are, the better financing terms you’ll get and the more purchase power you will have.
Pull Your Credit
You have to know your credit history before you apply for a loan. Even if you think you have always paid your bills on time and have no issues, don’t skip this step. Errors occur all of the time. You could have negative information reporting on your credit report and not realize it.
You can request your free credit report here. You won’t know your credit score, but you can see your credit history, this is what you are after. First, you want to make sure everything is accurate. Are all of the accounts yours? Are all of the histories reported accurate? If anything is incorrect, take the steps to rectify them right away. It could take a few months before you see a change, so the earlier you act, the better.
You’ll want to pull your credit report from all three agencies at this point. You may find different information on each one. This step will take some time, as you’ll have to comb through the history for at least the last 24 months. If there are issues, you may have to contact more than one bureau and/or the creditors to get the information changed.
There are two ways to know what you can afford. You can get prequalified and preapproved. At this point, looking at another year before you buy a home, you just need a prequalification. This is an estimate of what you can afford. Don’t use this as a concrete answer to your need for a loan. It’s the lender’s best guess at what you can afford and will possibly qualify to receive.
This way you know where you stand. You may have a number in your head that you need to borrow. See if that number matches what the lender shoots back to you. Their number could be higher or lower than you anticipated. You will need to adjust accordingly.
If the lender’s number is less than you wanted/needed to borrow, figure out why. Ask the lender the reason. Is your debt ratio too high and/or your income too low? Do you not have enough money saved for a down payment?
Knowing the answers to these questions early on can give you time to fix the situation so that you have the approval you need when it’s time to buy a home.
Save, Save Save
We can’t say it enough – save your money. Hopefully at this point you have your down payment or at least are close to it. You will need more than the down payment, though. There are closing costs, real estate taxes, and homeowner’s insurance premiums to pay. It’s not unusual to need as much as 6% or more of your loan amount in closing costs and prepaid expenses.
You want to be as prepared as possible. Your lender will need to source your funds needed for closing. If you get to the point that you are ready to buy a home yet you don’t have enough money for closing costs, no lender will approve your application. Starting now to save as much money as possible is the answer to prevent this situation.
Start Your Research
Once you have your finances in place, you can start figuring out where you want to live. Knowing approximately how much you can borrow and how much of a down payment you’ll have, you can get a good grasp on where you can live.
Browse through the real estate listings, contact a real estate agent, and even head to some open houses. This will give you an idea of what is available out there. Granted, if you are not going to buy a home for at least 12 months, a lot could change. But, knowing now what you can afford and which area that puts you in can give you a good idea of the future.
If you find you don’t like the areas that you can afford, it might be time to go back to the drawing board. Maybe you need more money saved for a down payment or you need to fix your credit in order to get a bigger loan.
The earlier you figure out what you need, the better your chances of getting the home you want. Plan early when you want to buy a home and you’ll have the outcome you wanted. If you find your qualifying factors are not quite where they need to be, you have time to fix the errors and make the most of your ability to get the home you want.