Preparing to buy your home is a big decision. Because an informed homebuyer will make wiser choices, our team will both educate and advise you on the home buying and financing process. With our Mortgage Pre-Approval Program, we will have you pre-approved for your mortgage, thus providing you a competitive advantage in potential multiple offer situations. These seven steps will help you structure your finances to provide you the most advantageous mortgage financing options.

Create a budget
If you don’t have a budget, create one. By budgeting your money, you will know how much you can afford to spend on a mortgage payment each month. Be sure you track your expenses to find out if you need to make cuts anywhere. A budget is a useful tool to help you keep expenses on track.

Attempt to reduce your debt
Most conventional lenders require a total debt to income ratio of not more than 36% of your income (including your mortgage payment). If practical, it is advisable you reduce your installment debt down to less than 10% of your income. This amount includes car loans, credit card payments, etc.

Know all your expenses
You probably know how much you spend every month on such things as utilities, credit cards, car payments, etc. but do you know how much you spend on other expenses such as food, gas, entertainment and clothing? It’s a good idea to track these expenses for a few months to find out how much you actually spend. Then adjust your spending accordingly.

Increase your income
If your finances prevent you from buying today due to your debt load, you might want to consider taking on a second or part-time job to increase your income to a level high enough to qualify for the home you want. Another option is to add another person as a co-signor on the mortgage loan.

Down payment options
Most loans require a down payment of 10 to 20% of the home’s purchase price. However, there are some loan programs where, if your credit score is high enough,  your downpayment can range from 0 to 5%. Even better, if you’re a military veteran, you can obtain a VA loan with no down payment! There are also down payment assistance programs available for some buyers. We can help you with your mortgage options to find out if you qualify for one of these programs.

It is advisable to put as much down on your home as possible. The obvious benefit is decreased mortgage payments and lenders view your loan in a more positive light. They will be more inclined to give you the best rates available when you have a significant financial interest in the home.

A steady job with a predictable income is preferred
While society has changed and more and more people often change jobs, having the same job for at least two years makes a favorable impression on lenders. They tend to offer you the best rates. Self-employed individuals should expect to supply 3 years of tax returns for your income history.

Pay your bills on time
One of the most important factors in securing a home loan and a good interest rate is to pay your bills on time. The better your credit score, the better financing you will be able to obtain. It is recommended you pay off as many bills as possible to increase your credit score and reduce your debt-to-income ratio. These factors are two important considerations to lenders.

Most people have secured credit in some form or fashion. If you have no credit, take out a loan or get a credit card and use it. Then pay off the loan or the credit card balance in full to establish a credit history, which is necessary to obtaining a home loan. You avoid costly finance charges by paying off the balance in full each month. It’s a win-win situation.

If you have less than perfect credit, work on repairing the damage. The best way to do this is to pay your bills on time. Consider talking to a credit counselor. The Fannie Mae Foundation – a private company chartered by Congress – can help you find credit counselors and other mortgage information. Call 1-800-699-HOME for assistance.

As an informed homebuyer, you should secure a copy of your credit report. Review it for any errors and notify the agencies of any inaccuracies you find. The Fair and Accurate Credit Transactions Act (FACT) entitles you to one annual credit report from one of the three major credit-reporting agencies. Go to www.annualcreditreport.com/cra/index?accesstime=1150748727926 for information on how to obtain your report from all three agencies. For your convenience, we’ve listed the contact information for all three agencies below including their web addresses and telephone numbers. Either go online or call them to request your copy.

Equifax
www.equifax.com
800-685-1111

Experian
www.experian.com
888-397-3742

TransUnion
www.transunion.com
800-916-8800

Understanding your finances and your credit score is the first step in buying your home. By following this advice, you should be well on your way to buying your home. To schedule your appointment to review our Mortgage Pre-Approval Program, contact us today.