Buying a house can be an exciting journey to first-timers, but it can also be daunting. The financial part is often the most stressful, but as long as you prepare well for this major expense, you should do just fine.
The Mortgage Process
You don’t want the surprise of learning that you’re not financially qualified to buy the dream house you’ve found after a long search. Avoiding this scenario means having good credit, cash for closing, and a confirmable income.
Checking Credit Reports
We all know that to get a mortgage, you need a good credit score. Start checking your credit reports for errors and may consider paying a daily credit score monitoring service for this.
A good way of improving your score is to pay down your credit card balances and stop using those plastics at least two months prior to your mortgage application. Also avoid applying for new credit until you have closed on your new house.
If you’re purchasing the property with a co-buyer (for example, your spouse), your credit score as well as that co-buyer’s will be considered by your mortgage lender. However, even if the other person’s score is impressive, don’t assume that everything will go off without a hitch. Lastly, remember that the least amount of time you can make a significant improvement in your credit score is six months, so start as early as you can.
Saving Cash for a Down Payment
Aside from ensuring that your credit score is looking great, you’ll also want to plan for the money you’ll need to make a deposit. This is usually some 3.5% to 20% of the purchase price. While saving for your down payment, avoid investing in the volatile stock market with the cash you intend to use within a year or two.
It can indeed be tempting, the idea of getting a bigger return on your money than a typical savings account can give you. At the same time, you don’t want to risk not having the funds when you’re ready to buy a house. While you save, don’t underestimate the amount of cash you might need.
Getting Your Documents in Order
Of course, at the end of the day, it all boils down to the documents you can produce. You can’t purchase a house – at least not within the protection of the law – without all those papers. Besides, you can never be approved for a mortgage until you can prove that you can afford to pay off the loan. So begin gathering those pay slips, w-2s bank statements, etc., and if you’re self-employed or a freelancer, copies of your tax returns over the past two years.