So, you’re ready to become an Arizona homeowner but unsure where to start? Before you hit submit on that loan application, we recommend completing a few important steps. Completing a few tasks before applying for a mortgage loan can improve your approval chances. We have compiled a list of things to do before requesting that a lender fund your dream home.
Check Your Credit Report
Your funding options are largely dependent on your credit score. By pulling a copy of your credit score, you can see what lenders will see when you apply, and it gives you an opportunity to make any necessary improvements. Everyone is entitled to one free credit report per year for each of the three bureaus, and preparing to buy a house is the perfect time to take advantage of this.
Review your credit report for any discrepancies and dispute these as soon as possible. Then, look for any areas of improvement. In the meantime, continue making payments on time and avoid taking out any new lines of credit. It can also be helpful to continue monitoring your credit for any changes as you begin the home-buying process.
Pay Down Your Debt
Your debt-to-income ratio is an important calculation when buying a home. Lenders review your debt-to-income ratio, which is a calculation of how much debt you have compared to your income. The only way to improve your debt-to-income ratio is to increase your income or decrease your debt. Decreasing debt is the only option for most people to present a better debt-to-income ratio.
Rather than making the minimum payments to your credit cards each month, try to pay them off faster. If you have any delinquent or past-due accounts, now is the time to take care of them. Contact the companies and request a payment plan or reduced payment in return for removal from your credit report. It’s extremely important to avoid taking out additional loans during this time, as this can counteract any improvements you make. Continue calculating your debt-to-income ratio with any changes you make until you’re satisfied with your percentage.
Understand Your Personal Finances
This is also a good time to sit down and understand your finances. You should calculate how much you’re comfortable paying each month for a mortgage rather than wait until you find out how much you’re eligible to borrow. Determine how much you’re currently paying for rent and how easy it is to make those payments each month. Don’t forget about the additional costs that can come with homeownership, including homeowners insurance, taxes, and repairs and renovations. Once you get your finances in order, you’ll find it easier to qualify for a home loan, whether you want a new residence or are ready to invest in real estate for a more secure financial future.
Compare the Available Lenders
Comparing lenders can help you get the best rates and enjoy a positive experience when buying your first home. With so many lending programs available, it may seem overwhelming to choose the right one. Home loans in Arizona include a wide range of options, including conventional, FHA, and VA. The right lender will walk you through these programs and help you choose the best option based on your finances and homeownership goals.
Obtaining a pre-approval before shopping for homes can also make the process easier. Home sellers are more willing to accept an offer from an interested buyer with a pre-approval because it means they’re more likely to be approved for a mortgage. This means there is less chance of the deal falling through.
Understand and Calculate the Costs of Home Ownership
Owning a home comes with many unexpected costs, and while the ability to earn equity and pay towards owning a property is typically well worth it, it’s still important to prepare for them.
Most lenders require a down payment when purchasing a home, and it’s never too early to begin saving. Down payment requirements vary depending on the loan you choose and the home’s purchase price, but you can usually expect somewhere between 3% and 20%. FHA loans typically have lower down payment requirements, whereas conventional loans are usually higher.
Some lenders offer down payment assistance programs, which can help cover your down payment requirements. Veterans may also qualify for a VA loan, which typically doesn’t require a down payment. You’ll also want to save for closing costs, which are lender fees and costs that the lender usually requires you to pay at closing time. Closing costs may include underwriting fees, credit report costs, inspection, and appraisal.
In summary
Buying your dream home is one of the biggest purchases you’ll make. That’s why taking the necessary time to check your credit score and pay down debt is worth it. Improving your financial situation can make it easier to make your mortgage payments while also qualifying you for a better rate.
