Finally decided to be a homeowner? Great move, but before you step into the housing market, be sure to consider your finances and get them in order. Ascertain that your financial situation is stable enough and that you are a serious buyer. We talked to some of the industry experts and here is what they advised.
Assess your cash flow
Evaluate both your incoming and outgoing cash flows. What are your monthly and yearly expenditures? Bills, groceries, phone, internet, insurance, taxes and so on. Factor all of these in, and make sure your income is enough to accommodate your current expenses as well as the monthly payments which you will have to make.
Also consider your savings. Are they enough for a down payment? Keep in mind that the greater your down payment is the lower the interest rate on your loan.
Get your credit score
No lender is ever going to give you a loan until they have scrutinized your credit report and ensured that you can afford the loan in the long run. Before they see this report, you should check it and ascertain there are no errors. Mistakes on credit reports are fairly common, and you can easily get them removed.
If your score is low, improve it before you apply for a loan. Generally, your score must be above 620, but if you want a really amazing deal, your score must be above 700.
Decrease your debts
Okay so your score is not so impressive. Start by making all payments timely and also decrease your debt. With most lenders, your debt should not be greater than 36% of the amount you earn. We suggest that you should first pay off the debt with the highest interest rate and then continue to remove others from the list. Doing this will boost your score fairly quick.
Needless to say, you should not take any loans if you are working on increasing your credit score.
Fine, your finances are in order, but the task is not yet complete. The last step is to obtain pre-approval from your chosen lender. They will go through your credit report, income, assets and investments, and determine your financial stability. Accordingly, they will let you know the amount they can lend you.