Dos and Don’ts Before Buying a House
If you’re looking to buy a home this year, you’re probably already working hard on saving up for your down payment and are watching interest rates like a hawk. While it might be too early to start browsing listings or put in offers, it’s certainly not too late to get your financial situation in order. Here are some dos and don’ts to keep in mind before you set out to buy your new home.
Don’t:
Quit Your Day Job
One of the things lenders are looking for when evaluating applicants is stability. When you apply for your mortgage you’ll be asked for your two most recent consecutive paystubs, so if you’re hoping to start the homebuying process in the next few months, now is not a great time to be quitting your job. If you have a longer time horizon before you’ll be applying for a home loan, say, six or more months, you might be able to proceed with caution.
Make Big Purchases
Another big no-no is to make any big purchases, even if it doesn’t affect your credit directly. Cash flowing out of your accounts can make lenders question whether you’ll be able to afford a new, big loan payment. As much as possible, hold off on big purchases until after you’ve gotten your mortgage approved and an offer accepted.
Make Big Deposits
It might seem counterintuitive, but it’s also not a good idea to make large deposits to your accounts while you’re securing a home loan. Lenders value consistency, and these sorts of deposits can cause them to wonder where the money is coming from. (Are you getting gifts? Is your income legitimate? Can you afford a mortgage payment?) If you’re planning on making a large deposit, you’ll need to prove the source of the money with documentation.
Do:
The Math
There are a lot of costs tied to buying a home, and the first question you’ve probably asked yourself is “How much house can I afford?” Start by making sure you have your current budget nailed down. This will allow you to know exactly what you’re working with.
Jeanne D’Arc makes figuring out other calculations easy on our website. Check out our Mortgage Payment Calculator to see what your monthly payments might look like when you enter your target loan amount and current interest rates.
Freeze Your Credit
One thing you absolutely don’t want happening is to attempt to secure a loan and then discover fraudulent activity on your credit report. You can protect yourself ahead of time by placing a credit freeze on your credit report. This will prevent anyone from being able to take out a line of credit in your name, potentially damaging your credit score, and you can un-freeze your credit when you are ready to apply for a home loan.
Boost Your Credit Score
Having a good credit score, generally defined by credit reporting agencies as a score in the high 600s and over, comes with some money-saving benefits. Having a high credit score can make you more likely to qualify for lines of credit you apply for and get a better interest rate. Improving your credit score can take time, so the earlier you start working on it, the better.
There are a few actions you can take to give your credit score a lift. The biggest contributing factor to your credit score is your payment history, so make sure to make every payment on time. Even better, simplify your life and make sure you never forget to pay a bill going forward by seeing up automatic payments. Another big factor in your credit score is the amount you owe, called your credit utilization. You can boost your score a bit by both paying down your current debt and by requesting to have your credit limits increased. It’s best to not carry a balance from month to month, but if you do, aim to keep it under 30% of your limit. A smaller factor in your credit score is new credit. New lines of credit can make you look risky to lenders, so avoid any unnecessary hard credit inquiries. This is also another reason to freeze your credit: if someone fraudulently tries to open lines of credit in your name, your credit score can drop before they even get a dime.
And definitely DO talk to an expert.
Buying a home can feel overwhelming, which is why you should meet with one of Jeanne D’Arc’s experienced loan officers to guide you and talk you through any questions you might have. Plus, if you’re a first-time homebuyer, you can get $500 off your closing costs when you finance your home with Jeanne D’Arc. Find out more and schedule your consultation today!