You’re in the market for a new home. You’ve pinpointed a few neighborhoods, narrowed down the style of home you’d like and have decided on the amount you’re willing to spend. You’re feeling confident that in just a few months, you’ll be handed over the keys to your home.
Before your house hunting adventure begins, get your finances in order. Here are the steps prospective homeowners should take to get their finances organized before making one of life’s biggest commitments.
Manage Current Bills
Before you can begin looking at buying a house, you’ll need to make sure that your current business is in order. This means paying all of your bills on time in the months leading up to a home purchase. It also means checking your credit report and settling any overlooked and unresolved issues.
Managing your current finances is vital if you plan on applying for a home loan. Lenders need to see that you’re on top of your financial obligations.
Pay Down Debt
You’ll need to pay down most – if not all – of your credit card, college loan and/or medical debt before looking into owning a home. Credit card debt is especially frowned upon by financial institutions so you’ll want close to a zero balance before visiting your lender. Although education and medical debt is more acceptable, you’ll still want to pay as much of these debts as possible so that you can focus on saving for that 10 to 20% down payment.
Visit a Financial Adviser
If you’re not very savvy in real estate ownership, it’s wise to visit a financial adviser to help you create a game plan. They’ll look at your current bills, income, house budget and all the extra costs that come with owning a house. Together, you can make a savings plan that’ll allow you to see the big picture.
You’ll need to figure out what kind of mortgage payment you can afford as well as HOA fees, property taxes and homeowners insurance. You can find rates for homeowners insurance with websites like HomeInsurance.com/Rates-in-Your-State/ and can look up HOA fees on community/subdivision websites too.
Locate the Best Lender
You shouldn’t settle on the first institution you visit for a loan. If you want to save time and money, consider hiring a mortgage broker to do most of the work for you. They’ll help you find the best lender after looking at your finances and prospective home price. They can save you thousands of dollars and frustration as they find a loan that best suits your needs.
Prepare Required Documents
To get approved for a home mortgage, expect to share every facet of your finances. You’ll need forms that show your taxable income, assets, rent payments and any other financial statements. Lenders will need your pay stubs and W-2s to verify your income. They’ll also need all bank, investment and tax forms.
Furthermore, if anyone has given you money toward your down payment as a gift, expect to hand over a gift letter and copy of the giftor’s bank account statement.
Buying a home is a long but rewarding process. Make sure you’ve taken the necessary steps so that the process is as painless as possible.