Rent Before You Buy – It is always a good idea to get a year or so under your belt as a tenant so you can understand some of the challenges that come with homeownership. Put yourself in the shoes of your landlord. Lenders like to see a track record of making housing payments prior to application and to get you used to making a house payment prior to owning.
Check Your Credit Report & Scores – If you have not seen your credit recently, this is a perfect starting point. You can get a free copy of your report at www.annualcreditreport.com. But if you go to www.MyFico.com you can download all three credit reports and scores. There are 48 different scoring models FICO uses and only one of these are the reports that mortgage lenders view. Going to Credit Karma or something similar may only give you false hope, since the scores will be different than the scores that mortgage lenders pull when you apply.
Pay Down Debts – You don’t necessarily want to pay everything off, but it is always a good idea to pay down credit cards because you will be able to afford a larger mortgage payment and will improve your credit scores if you are carrying a high utilization ratio. Do not, however, close any revolving charge cards that you pay off because this will likely hurt your score.
Put Spending on Hold – This kind of goes without saying, not only may this hurt your credit score, but it also made impact your ability to qualify for the loan.
Where is Your Money? – Lenders will want to document the last two months of your bank statements and if there is money moving between different accounts, it can get difficult to document. In a perfect world, if you have the money saved up for your down payment and closing costs, it is best to move this into one account that would be easy to document. Ideally this would be an account that will not have large deposits in the future, unless they are payroll related.
How Long do you Think you will Live in the House? – When it comes time to select a mortgage product, knowing the answer to this question can help narrow down your options so you can pick a loan that minimizes the amount of interest that you will pay over the term.
Understand Mortgage Rates and Programs – It is always a great idea to get with a trusted mortgage professional to go through how interest rates work, what mortgage programs are available and what the pros and cons are. They can explain how closing costs work and give you an idea of what monthly payments would look like at different price points.
Happy House Hunting!
The FMT