A home is the most significant investment you will make in your lifetime. To buy your first home in 2023, you must be well prepared. Here are some tips to follow to achieve these goals. To understand the home-buying process, you should also find out how to sell property in Tenerife.
Improve Your Credit
Your credit score is crucial when you buy a house. A credit score is a history of how you handle debt. Based on the amount of debt you rake up, you can either make your home-buying process smoother or difficult to navigate. Credit scores range from 300 to 850; the higher the score, the better for you, as lenders will want to lend you money. You can get a mortgage with a lower score depending on the loan type. Traditional and government-backed loans demand varying credit scores.
To apply for a traditional loan not backed by the government, you need to have a high credit score and some down payment. The recommended credit score for such loans is 620 or above; otherwise, the lenders will not approve the loan if your credit score is lower. You also have the option of taking a loan at higher interest rates, which means higher monthly payments.
Rather than part with way more money than you can handle, why not try improving your credit score? To improve your credit score, you should:
- Pay off Any Debts: Identify outstanding debts and service them till paid in full. This repayment makes you less of a risk to lenders, reduces your overall financial responsibilities, and gives you more room to service new debt.
- Pay All Your Bills On Time: When lenders evaluate your credit score, they want to see how reliably you pay bills.
- Do Not Apply For a Lot Of Credit: Don’t apply for credit cards when building your credit, as it means more lenders will pull up your credit report. Too many credit report pulls can negatively impact your score.
Save For a Down Payment
Save for a down payment to ensure you have enough money when you start the process. Set aside a portion of your salary for your home-buying fund. Saving needs a lot of discipline and a lot of thought about the best way to save. Banks prefer to lend to someone with at least 20% of the house’s selling price down payment. Liaise with a professional who will advise you on the best approach to saving.
Mortgage pre-approval refers to determining the amount of money you can borrow. Lenders look at your assets, income, and credit score to determine the amount they can approve, how much you can borrow and your possible interest rates. Two terms used interchangeably but mean different things are preapproval and prequalification.
Prequalification is similar to pre-approval but with less accuracy. In a prequalification, you don’t have to provide detailed financial information. The lender does not pull your credit; you only get a rough estimate without your credit. This means the rough estimate figures might change when the lender receives more details during pre-approval. To get pre-approval, you must provide the following:
- Proof of assets
- Proof of income
- Employment verification
- Credit history
- Debt to income ratio (DTI)
For a smoother pre-approval process, ensure you have all the documents. For your mortgage pre-approval checklist, include the following:
- Pay stubs
- W-2 statements
- Driver’s license
- Social Security Number
- Bank statements
Prioritize Between Wants and Needs
Write a list of things you need and cannot do without and those you don’t need but would be nice to have in your dream home. Determine what is essential and what you can do without, and then sit down with your agent before you start looking for a house. Some of the nice-to-have may be things like a pool, fireplace, and other things you can live without.
The must-haves list narrows your search, and the agent can shortlist the homes you need to consider. The nice-to-have list determines what you can sacrifice and solidifies the must-have list. During the search process, you might be surprised to realize some things are not as important as you might have felt, and vice versa. As you update these two lists, inform your agent so that they can get you your dream home.
Buying a home is a complex process that requires planning. You have to work on your credit score, save some money for the initial down payment, get pre-approval and finally make a list of must-haves and nice-to-have features. Of course, the process is a little lengthier, but these are the tips on what to expect.