Buying a new home is an exciting milestone but it can be full of uncertainty. You may be asking yourself what to do before buying a house. Luckily, the Diamond Credit Union experts are here to help!
Step 1: Review Your Credit Score
Your first step towards homeownership should include checking your credit score. If you are unfamiliar, your credit score shows how credit-worthy you are and lenders use your credit score to determine the likeliness that you’ll repay your debt.
Credit scores range from 300-850. A credit score below 600 is considered poor credit and above 700 is considered very good credit.
- Individuals with a higher credit score have access to lower interest rates and better loan terms.
- Individuals with a low credit score may be charged a higher interest rate and additional fees, driving up their total mortgage by thousands of dollars.
You can check your score once a year, at no cost and without affecting your score. There are many options to check your credit for free, including your financial institution. If your credit score is lower than you’d like, don’t worry. There are steps you can take to improve your credit score before jumping into your house hunt:
- Pay down your outstanding debt
- Make payments in full and on-time
- Don’t take on new debt
Step 2: Decide On A House Budget
With your credit score in check, your next move before buying a new house is to create a household budget. A solid budget is absolutely necessary when determining how much money you can afford to spend on a new home.
Collect your pay stubs, credit card statements, and monthly bills. Next, create a list of your total monthly income and your total monthly expenses. (Don’t forget to set aside money each month for savings). You can exclude what you’re paying each month towards your current mortgage or rent, because those expenses will no longer be applicable when you buy a new home. The income remaining after all your expenses have been deducted will show how much you can put towards a mortgage payment.
Another point to remember when creating your budget – don’t let a down payment on a new home totally empty out your savings. Be sure you still have an emergency savings set aside, that will cover any unexpected expenses that could arise in the future or cover your regular monthly expenses if your employment status suddenly changes.
Step 3: Get Prequalified For A Mortgage
With a budget in place, you’ll know how much money you can comfortably spend on a new home. But it’s always a good idea to talk with a lender and get their input on how much money you can borrow to purchase a home. You can do this through pre-qualification.
Supply your lender with your basic financial information – mainly income, debt, and assets. This can be done easily online or over the phone. You’ll receive an estimated mortgage amount for which you could qualify. This will give you a better understanding of the price range of the homes you can comfortably afford and help you narrow down your home search. However, this amount is not guaranteed and it does not mean you have been approved for a mortgage.
Still have questions? Talk to the experts at Diamond Credit Union for more information.
