If you’re in the early stages of buying a home, then you probably already know how important it is to be financially prepared to handle your down payment, closing costs, and other related expenses you’ll accrue throughout the homebuying process.
Fortunately, you’ve come to the right place, because we have a few handy tips for you to save money before moving forward with buying a house. Here’s what we recommend:
Take a Hard Look at Your Credit Score/Credit Report
When you apply for a mortgage, your lender will pull a soft credit report to determine early on what kind of loan you’ll qualify for. Since this is one of the first actions mortgage lenders take to determine your eligibility, you’ll want to make sure your credit score is in good shape.
To do this, register an account with a credit report website that will give you daily updates on your current credit score. Most of these websites will provide tips for how to improve your score, as well.
While examining your credit score on these websites, keep an eye on any changes you’re unfamiliar with so you can look into them and make corrections, if necessary. You must keep your credit report as accurate as possible before meeting with a lender.
See Where You Need to Make Changes
Once you’ve looked at your credit score, see where you can make changes. The higher your credit score is, the more likely you are to get a better interest rate. However, this doesn’t mean that you can’t get a mortgage if your credit score is in less-than-stellar shape.
Different mortgage loans require different minimum credit scores. We provide a breakdown of this below:
- FHA loans: 500
- Conventional loans: 620
- VA/USDA loans: 640
- Jumbo loans: 700
While your mortgage lender will help you understand which kind of loan you’re eligible for, having a baseline of where you are and where you have to go is an important first step in being financially prepared to buy a house.
For example, let’s say your credit score is 600, but you really want to be eligible for a conventional loan. To raise your credit score, see where you can make cuts. Are there subscriptions to streaming services you don’t use? Can you bring coffee from home instead of driving to Starbucks every morning? If you have multiple credit cards, pay more than the minimum payment in an effort to pay off the lowest debt first. Remember, even the smallest step can be the biggest step forward in your future.
Be Realistic About Buying a Home
We all have our dream house that we want to find. However, that dream house could be outside of your price range. When applying for a mortgage on your new home, you need to manage your own expectations. If you have a mortgage that requires you to make a 20% down payment and you only have a fraction of that, then maybe you need to reconsider your options or look at options that you’re actually able to get and base your decision on that.
Additionally, the bigger your down payment is, the more options you have to explore when it comes to getting a mortgage. You’re going to have more flexibility if you can make a 20% down payment instead of a 5% down payment. The more you pay upfront, the less you’ll have to pay every month.
Check for Any Prepayment Penalties
Believe it or not, there are some cases where paying off your mortgage early can actually result in you being penalized. While this might seem counterintuitive to what you would think, it’s something worth checking out. While it’s admirable to want to pay your mortgage off early, the last thing you want is to get hit with a penalty and have to pay more out of pocket.
Learn What Mortgage Lenders Look For In First-Time Homebuyers
We mentioned a lot of good tips so far in this article, but to get the best idea of what mortgage lenders are looking for, our best tip is to ask one. If you’re not sure how to financially prepare yourself for buying a home, there’s no harm in speaking with a mortgage lender to find out what their approval criteria are.
When it comes to approving a buyer lenders look for the following factors to determine if they’re financially sound enough to move forward:
- History of credit payments and credit score
- Employment history and income
- Bank statements
- Rental history if this will be your first time owning property
- Your debt-to-income ratio. Remember, your debt to income ratio should be under 40%
While this is not an exhaustive list, these are just a few of the key factors that mortgage lenders look at before approving an applicant for a loan.
Are You Ready to Start Buying a Home? The Team at City Creek Mortgage Can Help!
Buying a house can be an exciting time for you and your loved ones. However, if you don’t take the necessary steps to become financially capable of doing so, you’re only going to be adding more stress to what is already a full plate.
When you’re ready to obtain a mortgage from a qualified lender, the team at City Creek Mortgage can help. We not only have years of experience working with first-time homebuyers, but we have a deep well of knowledge about every type of loan, who qualifies, and what steps families can take to get there.
We’re available by phone at 801-501-7950. Call us today to speak to one of our skilled mortgage lenders. A call to us is your first step in buying the home of your dreams. So, what are you waiting for?