Buying a home is one of the biggest financial choices you’ll make and the whole process can feel daunting. Steer clear of the following missteps to potentially stress less during your homebuying experience.
1) Not reviewing your credit history
Your credit reports and scores help determine your rates, pricing, and if you qualify to borrow for a home purchase. Review your financials for areas of improvement before approaching a lender.
Pull free credit reports from the three major credit bureaus at AnnualCreditReport.com. Check for errors and dispute any incorrect information you find. Cleaning up your reports may help boost your credit score, which could lead to a potentially lower interest rate.
2) Skipping the pre-approval process before house hunting
If you’re stopping by open houses without a mortgage pre-approval, you’re missing a crucial step in the homebuying process. A mortgage pre-approval involves a lender reviewing your credit, income, and assets to determine how much house you can realistically afford. Home sellers are much more likely to take your purchase offer more seriously if you’ve been pre-approved for a home loan.
Learn about our Priority Purchase pre-approval program and how it could turn you into a competitive homebuyer.
3) Neglecting to save for closing costs and reserves
It’s easy to fixate on saving for a down payment, but there are other expenses you’ll be responsible for before and after the closing table. You’ll pay closing costs which usually range from 2% – 5% percent of your home’s purchase price. These costs might include various third-party fees and charges related to your homebuying transaction.
It’s also important to have an emergency fund with at least three to six months’ worth of expenses saved in the event of a crisis, such as a job loss or injury. This gives you a cushion to maintain mortgage payments while you financially recover.
4) Racking up debt ahead of your closing day
Remember that mortgage pre-approval you got before you started shopping for your new home? It’s based on the assumption your financial circumstances will stay the same until you close on your home. If anything should change — especially related to your income or debt load — you could be denied for a final mortgage approval.
Aside from your credit score, debt-to-income (DTI) ratios, or the percentage of your monthly income used to make your monthly debt payments, are also a part of qualifying. These debts usually include any auto loans, personal loans, student loans and credit card balances, along with your estimated monthly mortgage payment.
If you’ve recently taken on new debt or nearly maxed out your credit cards, you risk increasing your DTI ratio and lowering the chances of your lender approving the loan for your home purchase.