Buying a home takes a lot of financial preparation and groundwork. Are you ready?
Preparing to buy a home is no small ordeal. The thought of saving up enough money on top of searching for a home in the right price range is enough to bring anyone stress. With some determination and discipline, preparing to buy a home in 2020 can be more manageable than you think. We’ve come up with some tips to help you get there.
How You Can Prepare To Buy a Home This Year
1. Get your credit in check
Does your credit score need some work? According to Experian, lenders consider a FICO credit score above 703 to be “good” by industry standards. 740-799 is considered “very good” and above 800 is “exceptional.”
The lower your score, the more difficult it will be to get a conventional loan or favorable interest rate.
Scores in the 500s may require applying for an FHA loan, which has multiple drawbacks such as extra fees rolled into the loan as well as indefinite mortgage insurance.
How can you improve your score to buy a home?
- Decrease your credit utilization ratio – shoot for less than 30% of your available credit.
- Make on-time payments each month
- Don’t close unused credit cards
- Make extra debt payments
- Don’t apply for new credit cards
Credit bureaus typically update your score every 30-45 days, so with some hard work, you should see a difference in your score after just a few months!
2. Don’t make any large purchases
If you’re serious about a home becoming your next purchase this year, avoid any large expenditures that will affect your credit. If you’ve been eyeballing a new car or dream vacation that you can’t pay upfront for, save it until after you’ve closed on a house. Even if you’ve been preapproved, it is not advisable to make a large purchase. Remember, lenders, look closely at your debt-to-income ratio and revolving payments when it comes to lending you money. Making this mistake will set you back significantly.
3. Don’t change jobs
One thing mortgage lenders look at on your application is your employment history. If you’re preparing in 2020 to buy a home, avoid changing jobs at all costs.
Stable employment shows the loan company you have a reliable income and the ability to pay your mortgage on time. Typically, a two-year history is considered a strong employment record, so stick it out until you buy that house!
4. Start a side-business
Saving more money for a down payment is never a bad idea. The more you’re able to pay upfront, the lower your monthly payment will be. If you’re able to save 20%, do it at all costs. You’ll avoid wasting money on pesky private mortgage insurance (PMI) and get the best interest rate.
Starting a side hustle specifically to save money for a down payment and closing costs is a great way to prepare to buy a house. Need some ideas for a side business?
- Lawn maintenance
- Vehicle detailing
- Pressure washing
- Freelance services
- Digital marketing consulting
- Dog walking
If you’re serious about preparing to buy a home this year, take advantage of the resources online to help you figure out your finances. Check out this mortgage calculator to help you estimate your payments. Determine your debt-to-income ratio and see where you can improve. Assess your debt payoff timeframe to determine when your credit utilization ratio will be at the right level. Feel like you’re ready but don’t know where to start? Contact a DRU agent and we will help you walk through the entire process.