When you are tired of renting and want to own your own home, you may not be ready to start working with a real estate agent to look for a home to buy. Here are some tasks you can complete to prepare your credit and improve your chances to get good home financing to buy the home of your dreams:
Prepare Your Credit
One of the first things you can do as a credit consumer looking to buy a home is to evaluate your credit and credit score. The condition of your credit will determine the type of loan financing you can get and the terms of the interest rate. The better your credit score is, the better your chances will be to get a low fixed interest rate. When you can get a lower interest rate for your home purchase, you can afford a larger home and pay less for the home over the life of the loan.
Your credit score is dependent upon the type of credit you have and how you manage it. For example, if you have five credit cards that are all maxed out to their limits, this will reduce your credit score. However, if you have three credit cards that have balances of 50 percent or less than the credit limits or you pay them off each month as you use them, your credit score will be much better. So if you have a large amount of credit card debt, work to pay it down or consolidate it into a signature loan or use your vehicle equity to pay off the unsecured debt to transfer it to a secured loan. Doing this along with paying your debt on time each month can help improve your credit score while you compile your home wish list with your realtor.
Check Into a Mortgage Pre-Approval
After you have checked into your credit and taken steps to get your credit score a bit higher, you can start the application for your home loan. When you borrow money to buy a home, the lender will want to make sure your income will cover the amount of the debt, using different calculations in the process. They will tell you your pre-approval amount for a loan and provide you with verification that you and your realtor can show to a seller when you need to show proof you are approved for a certain amount.
A pre-approval letter shows the seller you are qualified, serious, and are prepared to proceed through the closing process and buy their home. And it also helps strengthen your offer. If you and your realtor are preparing to submit an offer on a home and find that you are competing against another buyer, your realtor can submit your pre-approval terms to the seller to help you stand out as a more qualified buyer.