If you've just begun to think about purchasing your first home, you may be nervous about the process and what to expect. Even if you're fortunate enough to find your dream home relatively early in your search, arranging financing and ensuring your new home passes all relevant inspections and appraisals can be challenging even for experienced buyers and sellers. It can be crucial to ensure all your financial ducks are in a row before you begin looking; doing so can ensure you don't miss out on your dream home if financing falls through. Read on to learn more about the financial matters you'll want to tackle before you begin your house-hunting process in earnest.
Reduce your credit card debt
If you carry a balance on one or more credit cards, you may want to take steps to reduce this balance or pay it off entirely prior to applying for a mortgage. To the extent you're able, you may also want to avoid using your credit cards for more than the bare minimum expenses during the time you're house-hunting and hoping to qualify for a mortgage. When determining your ability to afford a mortgage, lenders will take into account all your monthly debt obligations, including any minimum payments on your credit cards.
While credit cards generally have a fairly low monthly minimum payment relative to the outstanding balance, a high utilization rate for revolving debt can have a major impact on your credit score; and depending upon where in the credit reporting cycle you are at the time a report is run, your utilization rate may appear artificially high. By keeping your credit cards on ice during your mortgage application process, you'll improve your ability to qualify for the best rates and terms.
Although obtaining a pre-qualification letter won't guarantee you financing for your dream home later, it can help you ferret out any issues with your credit history or report prior to your official mortgage application. In some cases, you may find that an overlooked medical bill or utility payment has resulted in a past due or late payment report on your credit; correcting this prior to your mortgage application can prevent it from being rejected.
Having a pre-qualification letter can sometimes set you apart from other applicants who may not yet have investigated their own financing options, making it more likely your offer will be the one eventually accepted.
For more information about how to apply for a mortgage, contact a real estate agent.