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Getting the Dream Home: How You Can Prepare Now

Buying a home is an exciting proposition, but it can also be financially stressful. When you find a home you love, the last thing you want is to have your mortgage application denied. Here are four things you should do now so you can be prepared to buy your dream home in the future.

Pay Down Your Existing Debts

One factor that lenders look at when considering mortgage applications is the applicant’s ratio of debt to income. If your debts are too high, your application could be denied. For this reason, it’s a good idea to pay down any credit card, student loan, and auto debts before buying a home. Reducing your debt load will also make it easier for you to make your mortgage payments without straining your finances.

Save for Your Down Payment

Like most types of loans, home loans require a downpayment to show that you are financially stable and able to save money. While you can get away with as little as 3.5 percent down for an FHA loan, it’s generally best to save up to 20 percent if you can. With a larger down payment, you’ll be able to reduce your monthly payments and potentially secure a lower interest rate on your mortgage.

Begin Working on Your Credit Score

Improving your credit score can also help you buy the house you fall in love with. Having good credit will mean fewer hoops to jump through, better chances of approval, and lower interest rates on home loans. Clearing up your debts will go a long way toward getting your credit into good shape. You should also consider keeping old accounts open to lengthen your credit history, as this helps your score.

Get Pre-approved

When you are actually ready to start house hunting, it’s a good idea to get pre-approved for a mortgage. A letter of pre-approval allows you to make an offer on a house immediately, knowing that a lender has approved you to borrow up to a certain amount. Especially in a hot housing market, the time you can save by getting pre-approved can make all the difference between being able to buy your dream home and getting beaten out by another buyer.

 

With a little preparation, you can put yourself in a good position to successfully buy your dream home when you find it. By taking these simple steps, you’ll be able to improve your financial picture and more easily secure financing for a home.

 

 

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Rachelle Wilber

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