Tips to Getting Financially Ready to Buy a Home
Buying a new home is hopefully a well-celebrated milestone for many. Getting your financial house in order is your number one priority, after that you can focus on the more fun aspects of choosing you new home. Let’s take a look at what it means to be financial ready to purchase.
Review Your Credit Score and Reports to See Where You Stand
There isn’t a one-size-fits-all approach to improving your credit scores, given the uniqueness of each person’s circumstance. Still, a few guidelines can help, especially if you follow them in advance of starting the home buying process.
Overall, your credit score should increase over time if you stick to the following strategies, which can result in better mortgage rates and faster approval.
Keep Track of Your Bills and Pay Them on Time
If you fail to pay your credit card bills or another bill, your credit score will suffer, which may impede your first home purchase process. Creating an auto-pay account for important and reoccurring bills, such as your insurance, cell phone, ad car payment is one easy way to ensure your important bills are paid on time.
Use a Smaller Portion of Your Available Credit
The credit usage ratio, which computes the amount of debt you have taken to the amount of credit available to you, is a significant element in credit rating. Your ratings may improve if you use less than 30% of your available credit. For example, if your credit card has a $1000 limit, you should stick to keeping a balance no more than $300.
Avoid Opening Any New Credit Accounts
When requesting a credit card, a lender will run a hard credit inquiry, which can impact your credit rating and may end up lowering your credit scores temporarily. Be aware, this applies to more than just credit cards. Car loans, furniture purchases on credit, and the like can impact these scores.
Keep a Variety of Credit Cards
The types and number of credit accounts you have, in addition to how long you have had them, affect your credit ratings. Lenders will consider these in determining if you can successfully manage a variety of different forms of credit. However, if you have not had many forms of credit or credit for a long period of time, consult one of our preferred lenders for ways you can still qualify for a mortgage.
Determine the Costs of Purchasing a Property
There are several additional costs and fees associated with a new home purchase mortgage. Because these costs can add up, it is critical to thoroughly investigate and consult with a professional. These may include homeowners association (HOA) fees, Mello Roos, impound accounts for insurance and taxes, or private mortgage insurance (PMI).
Determine How Much You Can Afford
When buying a new home, there are numerous resources available to help you determine the right financial commitment for you. One easy way to start is to use an online mortgage calculator to determine a price range depending on your income, down payment amount, desired location, and other factors.
Decide on a Down Payment
The minimum amount of down payment required varies amongst lenders and loan types. According to the NAR 2020 Survey, the median overall down payment is estimated at 7% – 12% for individuals making their first home purchase and 16% for repeat buyers.
Finally, Obtain a Pre-Approval Letter
The last step in putting your finances in order before purchasing a new home is to get a mortgage pre-qualification letter. This is an initial document showing that a lender has reviewed your financial situation and given you an estimate of how much you can borrow and the interest rate you can expect to pay. The pre-qualification letter can give you an edge over other buyers when purchasing a new home in Sacramento.
Looking to Buy Your First Home?
Our New Home Advisors are well versed in the Northern California real estate market. We can help you through the buying process and demonstrate the best value for your money when shopping for new home in Sacramento.