If you’re thinking about buying a new home in the future, your mind is likely filled with what neighborhood you’d like to be in, what size of home you can afford, and what layout will work best for your family. However, the terms of your home loan and mortgage should be on the top of your list of things to figure out.
So if you’ve yet to really think about what you want out of your mortgage and how to ensure that you get it, here are three things you should do to prepare for applying for a home loan and getting the best possible terms.
Pay Off As Much Debt As You Can
Before you even begin thinking about applying for a home loan, you should first do everything in your power to get your finances in order. A big part of this, according to Ken Lin, a contributor to Inc.com, should include paying off as much of your debt as you possibly can.
One thing that banks or credit unions are going to be looking at when considering whether to lend to you is your debt-to-income ratio. This means that if a big portion of your paychecks are already going toward paying off debt, you’ll have a harder time qualifying for a good home loan. So the more you can reduce this ratio, the better.
Do Whatever It Takes To Boost Your Credit Score
As you reduce your debt-to-income ratio, your credit score will automatically start to rise as well. However, there’s still more you can and should do to help boost your credit before applying for a home loan.
According to Latoya Irby, a contributor to The Balance, the very first thing you should do when trying to improve your credit score is to get your credit report. With an accurate picture of your credit, you can dispute any bad information, see what delinquencies you might be working against, and begin paying down or paying off all debt associated with your identity.
Start Saving For A Down Payment
Once you’ve eliminated what debt you reasonably can, you should then put all your force into saving for your down payment. The more money you’re able to put toward your down payment, the more favorable your loan will likely be with regards to its terms.
Ideally, David Weliver, a contributor to Money Under 30, suggests that you try to save at least 10 percent of the cost of the home you’ll be buying. However, the more you’re able to save, the better.
If you’re thinking about buying a new home and will need to apply for a home loan in the process, consider using the tips mentioned above to help you prepare for this financial event.