Buying a house can be an exciting journey to first-timers, but it can also be daunting. Preparing your finances is often the most stressful aspect of the process, but if you have the right information, everything should go smoothly.
The Mortgage Process
You don’t want the surprise of learning that you’re not financially qualified to buy the dream house you’ve found after a long search. To avoid it, you need good credit standing, money to close and a income you can prove.
Checking Credit Reports
It’s no surprise (hopefully) – to get a mortgage, you need a decent credit score. Start poring through your credit reports to find errors or use a daily credit score monitoring service if possible.
A quick way to improve your score is to pay down your existing balances and stop using your cards for at least 60 days before submitting your mortgage application. Also avoid applying for new credit until you have closed on your new house.
If you’re purchasing the property with a co-buyer (for example, your spouse), your credit score as well as that co-buyer’s will be considered by your mortgage lender. But even if the other person has a stellar score, don’t assume everything to be perfect. Lastly, remember that the least amount of time you can make a significant improvement in your credit score is six months, so start as early as you can.
Saving for Your Deposit
On top of keeping your credit score in check, you’d also like to prepare enough cash to make a deposit. This is usually some 3.5% to 20% of the purchase price. While saving cash for your down payment, resist the urge to make those volatile stock market investments with money you will be using in a year’s time or even in two.
It can be so tempting indeed when you know you can get a larger return on your money instead of sticking to a traditional savings account. At the same time, you wouldn’t want to risk not having the funds to pay for a house when you’re ready to buy one. While you save, don’t underestimate the amount of cash you might need.
Of course, in the end, it’s all about the documentation. You can’t buy a house – at least not legally – without all that paperwork. Besides, there’s no way you can get a mortgage if you can’t prove that you have enough income to pay off the loan. So begin gathering those pay slips, w-2s bank statements, etc., and if you’re self-employed or a freelancer, copies of your tax returns over the past two years.