Here are 7 financials tips to prepare for buying a home:
Understand the Costs
Down payment, earnest money, home inspection, closing costs, moving expenses. When saving to purchase a home, take all of this into consideration. Many expenses can be negotiated in the sales contract for a seller to pay, but it’s not a guarantee. Sit down with a real estate agent to get a realistic feel for how much you need to have saved. It’s better to be prepared than to be surprised.
For a lot of home buyers it can be easiest to create a new savings account so they can easily see how much money they have saved for their new home. Transfer money into the account from your original savings account, but don’t move money around too much. More on that later.
Stop Using Credit Cards
After you’ve been pre-approved do your best to not make any dramatic changes to your credit. This means not increasing the balance on your credit cards for fear of pushing your debt utilization ratio over 30%. Even before your pre-approval you will want to slow down your credit card purchases so you have a debt ratio well below 30% when you talk with a mortgage broker. For more tips ask your real estate agent for a trustworthy mortgage broker and schedule a meeting.
Maintain Several Tradelines
While you don’t want to increase your debt, you also want to have multiple lines of credit. In most cases without three tradelines you won’t be approved. This includes credit cards, student loans, car loans, etc.All of your accounts should be 12-24 months old, so if you’re thinking of purchasing a home but don’t have multiple tradelines, it’s time to open a new account. Use this new account to buy gas or groceries, something you can easily pay off at the end of each month.
Leave Money Where it Is
Within several months of purchasing your home, leave your money where it is. You’ll need to provide several months of bank statements when you apply for a mortgage. Shuffling money around makes a paper trail longer and harder for you to supply to your mortgage broker. While moving money around won’t disqualify you for a loan, it will make your life more difficult.
Review Your Credit Report
When you’re ready to start the home buying process it’s important to review your credit report for any issues. If you find any inaccuracies, file a dispute with the reporting agency. Even if you don’t find any issues, pulling a credit report allows you to see where you stand and what you may need to work on to be able to get approved for a mortgage. If you know you have strong credit, wait until about 3 months before you apply for a mortgage to give you time to fix any inaccuracies. If you tend to pay bills late, pull a report 6-9 months before you apply for a mortgage so you know what needs to be cleared up.
Build Your Savings
Cash is king. Even if you already have enough for a down payment, keep on saving. This savings will help you out with surprise projects after you purchase your home. Or, you can apply more cash to your downpayment to keep your monthly cost low. Regardless, as you work your way toward home ownership continue to build your savings.
Get out there and get saving! Contact your real estate agent to schedule an appointment to go over the cost of home buying and ask for needed referrals.