With mortgage rates at historic lows, now is an excellent time to buy a home. However, before you begin your search for the perfect home to buy, it’s important to get all of your finances in order. Your financial situation determines how large of a mortgage you can afford as well as how much money you’ll have for the down payment, fees, and moving expenses. Therefore, it’s essential for prospective homeowners to calculate their monthly income and expenses in order to see how much money they are going to have leftover to place toward the purchase of a home.
When you apply for pre-qualification of your mortgage, the lender is going to take a long look at your list of assets as well as your liabilities. Only some states require residents to seek pre-approval for a home mortgage prior to looking at available listings. However, it is an excellent idea to obtain pre-approval documents even if you are not required to do so, since you can use it as leverage when making a bid on a house. Having received pre-approval for a home loan gives a prospective homeowner a distinct advantage over those individuals who have not yet obtained their letter of pre-qualification.
Take the time to organize your paperwork, consolidating all of your assets into one folder and your debts into another file. This will make it easier to keep track of how much debt you have as well as how much money you have available.
Since the three credit bureaus, Experian, Trans Union, and Equifax offer one free credit report per year to consumers, you should take advantage of this scenario and obtain your report. Your credit score, which is used by the lender to determine the feasibility of loaning you money, is affected by everything that is contained on your credit report. Therefore, you should take the time to ensure that all of the information is correct. If you discover invalid information, contact the credit bureau and have the information removed.
At this time, you can also try to improve your credit rating by paying your bills on time and paying down your debt, while curtailing spending at the current time. This strategy is more effective if you start using it approximately 6 months to a year before you intend to begin your search for a home. One of the best reasons for straightening out your finances is the fact that you will know exactly how much available cash you’ll have for the down payment as well as how much money you’ll have each month for the monthly mortgage payment.
Summary: If you are planning on buying a home soon, why not take a good look at your finances in order to determine how much available cash you are going to have?
By Pamela J. Sams, CRPC®