When you decide to buy a home, there are some steps you can take to get your credit prepared and to help you secure financing. Here are some tips to help you begin this process of buying a home and prepare you for what to expect.
Review and Clean Up Your Credit
Unless you have cash to pay for your home at closing, you will need to qualify for a mortgage. This will require you to have a credit history and score to apply for the financing.
As soon as you know you plan to buy a home, review your credit so you can correct any errors and improve your credit score. The higher your credit score is, the better chance you will have to get a lower interest rate on a home mortgage.
Get a copy of your credit report online through one of the main credit bureaus: Equifax, Experian, and TransUnion. You can request and view it online or get a copy through the mail. Look to see if your file includes any errors, which can sometimes show up on your credit file, and file an online dispute for them with the credit bureau. The credit bureau will then be required to investigate the error for resolution and correction.
An error on your credit file, such as erroneous reported credit account or incorrect late payments, can negatively affect your credit report and should be corrected to improve your score. This type of error can cause you to fail to qualify for the lowest rate available, which can cost you more interest over the life of your mortgage.
Next you should talk to a mortgage broker about applying for a mortgage program. Depending on your credit score, income, and job history, your mortgage broker will get you the lowest rate and best financing for you that will fit your needs. Your mortgage broker will need to look at your credit file, get copies of your latest paychecks, and even look at your last year's tax returns. The requirements for your loan approval can vary, but be prepared to get the required paperwork for them as quickly as possible to help the loan process along.
If you do not qualify for the lowest mortgage rate available, you can apply for an adjustable rate mortgage that will, for example, start out at a low rate, then after several years the rate will increase. This financing option is good when you know your income and credit will improve over the next few years. Then you can refinance your loan to secure a lower fixed rate at a later date.
Once you are approved for a loan you will know how much your spending limit is on your new home. This will help you begin looking for a home to buy to fit your needs and your budget. Talk to local realtors to find one to work with and help you locate and negotiate the purchase of your new home.