First things first…buying a home isn't rocket science. However, it does take some discipline, some strategy (depending on current market conditions), and some patience to accomplish the goal.
There are three factors that mortgage lenders always consider in determining whether or not you are "qualified" for a mortgage loan:
1. The amount of your income and the stability of your income.
2. Your credit history and credit score (which gives lenders an indication of your likelihood of default on the mortgage loan).
3. The amount of debt that you currently have and that you will have after purchasing the home.
Bonus Consideration
How much money you will have left saved after you complete your home purchase (your loan reserves).
So here’s what you can do to prepare to purchase a home.
1. Reduce your expenses and continue to save money where you can. You will need money saved to buy a home—possibly for a down payment, closing costs, reserves in your account for underwriting requirements and most importantly, future housing expenses. You may also want to use some of your savings to buy your interest rate down, which will result in a lower mortgage payment.
2. Review your credit reports for accuracy and address anything inaccurate. You can obtain free credit reports annually from AnnualCreditReport.com to review for inaccuracies. If you want to obtain an accurate credit score without having a mortgage loan officer check your credit first, you can get your score at MyFico.com.
3. Pay down debts. If you have high balances on revolving loan accounts, such as credit cards and personal lines of credit, you should pay them down as much as possible (to below 30% usage, ideally). For installment accounts, such as your car payment, check with your mortgage lender first before paying off the installment note completely, because once the note is paid off, the account will be closed—and this may temporarily decrease your credit score for some time.
4. Continue to pay your bills on time. You don't want any late payments being reported on your credit when you're preparing to buy a home, and you don't want to skip payments that you can pay and potentially be responsible for a lump sum payment when payments resume.
5. Do not open new credit accounts (without consulting with your mortgage lender first). Just like closing accounts can temporarily decrease your credit score, so can opening new accounts. Not only that, but you don't want to be tempted to incur more debt while you're in the process of purchasing a home.
6. Do not make sudden and drastic changes to your employment situation (like going from a corporate job to starting your own business, or going from permanent employment to a contract position). You can make these changes if it's the right move for you; however, in most cases, you will need to show at least two years of your new income, or have a qualified co-signer on your mortgage loan.
7. Determine what's important to you in a home. What are your absolute, but realistic non-negotiables? Is it the walkability of the neighborhood? Is it the school zone? Is it the type of house? Think long and hard about what you want and what you're willing to do (or not willing to do) to get it.
8. Remain optimistic about the market. It's hard to time the market, but you should still be aware of recent trends within the market.
9. Find a trusted real estate professional in your local market to assist you throughout the process. Having a great real estate professional on your team makes the process a lot smoother.
A passionate and trusted real estate professional, Sharetha Holman, is a licensed NC and SC real estate broker with Apex Realty of the Carolinas, Inc, primarily serving the Charlotte NC and surrounding areas.
With a love for people, business, finance, and home ownership, Sharetha has served her clients in real estate since 2006. Contact Sharetha anytime—and connect with her on Facebook, Instagram, and Twitter! It would be a pleasure to get to know you better.
To start your home search today, visit Apex Realty of the Carolinas.com.
