Purchasing a house for the first time should be an exciting and happy moment however the process of obtaining one can be difficult and anxiety-provoking. Like most things in life, preparation makes everything much easier and having your finances in order and documents prepared ahead of time will definitely simplify the process. Important issues that need to be addressed beforehand include building a solid and stable work history, writing a personal budget, getting a copy of your personal credit report and reviewing it for inaccurate items and setting aside enough money for the down payment for your residence in the future.
Credit Report
It’s important to get a copy of your credit report from each of the three credit reporting bureaus; Transunion, Equifax, and Experian. Read each item and note the differences and errors. If there are inaccuracies, you can dispute them and this must be done with each of the three agencies separately because the agency does not share information. Disputes can be filed by mail, fax or phone. The bureaus have legally thirty days to investigate your dispute. Find out what your Fico score is. A good score is crucial when it comes to obtaining low-interest rates. Delinquency and derogatory accounts have a negative effect on your score. It is also a good idea to pay off some of your current loans and debts because the ratio of debt to income is a factor that determines the type and amount of loans you will get.
Job Stability
It’s important for you to show job stability. Most lenders recommend that you have at least two years of work history with the same employer. The lender also prefers to see at least two years working in the same field and career because it shows stability. You may be required to display your employment paycheck stubs and bank statements. If you are self-employed you will need to show proof of income with at least two years of IRS documents and possibly proof of other assets and business financial documents.
The Loan amount that is Right for You
Calculate the loan amount that is right for you. Don’t forget that you will also need to pay property taxes, utilities, homeowners insurance, maintenance costs and possibly private mortgage insurance (PMI). Write down your monthly living costs and determine out a reasonable amount that you can afford. It’s a smart idea to downsize and purchase a home that you can easily afford instead of getting a more expensive home that will be a struggle for you to make payments on.
Do not apply for any large loans and make any large purchases in the months leading up to your mortgage application, such as an automobile or student loans. Doing so will increase your debt-to-income ratio significantly and you will have less money available to apply towards your down payment and closing costs.
Purchasing your home does not have to be a stressful situation. Being fully prepared ahead and arming yourself with knowledge is the key to a smooth and happy transaction.
