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
The last thing you want is find out that you’re not financially qualified to purchase your dream home. Avoiding this scenario means having good credit, cash for closing, and a confirmable income.
Checking Credit Reports
It’s no surprise (hopefully) – to get a mortgage, you need a decent credit score. Start poring through your credit reports to find errors or use a daily credit score monitoring service if possible.
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 steer clear of getting new credit until you’ve closed on your new home.
If you have a co-buyer, such as your spouse, keep in mind that your mortgage lender will probably look at both your credit scores. However, even if the other person’s score is impressive, don’t assume that everything will go off without a hitch. Finally, take note that it takes at least six months for your credit score to show some significant improvement, so it’s best get started as early as you can.
Saving Cash for a Down Payment
On top of keeping your credit score in check, you’d also like to prepare enough cash to make a deposit. Expect this to be about 3.5% to 20% of the purchase price. While saving cash for your down payment, resist the urge to make those volatile stock market investments with money you will be using in a year’s time or even in two.
It can be so tempting indeed when you know you can get a larger return on your money instead of sticking to a traditional savings account. At the same time, you can’t risk not having the funds in handy when you’ve found the right house to buy. As you save, don’t underestimate how much cash you’ll likely needs.
Getting Documentation 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, there’s no way you can get a mortgage if you can’t prove that you have enough income to pay off the loan. So start collecting those paystubs, bank statements, w-2s, etc., and if you’re a freelancer or self-employed, copies of your tax returns in the last two years.