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Buying a home can lead to major changes in your life and your money management. While this is often a smart business because you can start building some equity, first make sure your finances are in order.
If you’re hoping to own a home before the end of 2021, take these crucial steps now to make a smart purchase that will keep you satisfied for the long haul.
1. Fine-tune your key credentials
If you are buying a home, you want to be an attractive customer for the mortgage lender you are applying to. Mortgage lenders look at these key things: credit score, income, and current debt level. So work on improving all of these things right away.
It’s essential to check your credit report now if you haven’t already. Watch out for mistakes. And if there is any negative information such as late payment, contact creditors to see if you can remove it.
You should also avoid changing jobs if possible, so that lenders don’t worry about your income stability. And consider paying off as much debt as possible to improve your debt-to-income ratio, which lenders see as a crucial financial metric when assessing your ability to pay off your mortgage.
2. Save as much as possible for a down payment
If possible, a 20% down payment is ideal because you won’t be paying for mortgage insurance; you can usually benefit from a lower interest rate; you have more choice of lenders; and you lower your chances of ending up with negative equity (due to more than your home’s value).
Even if you don’t think you can save 20% by the end of the year, seriously consider growing your down payment account. This is the critical time, so make short-term sacrifices, such as reducing discretionary spending from your budget to grow your account before you bid.
3. Buy a home loan
Finding the right mortgage can take time, so don’t wait. Get quotes from multiple lenders today, so you can compare what each is offering in terms of interest rates and loan terms.
This should give you a good idea of ââwhich lender you want to work with, how much you can borrow, and how much your loan will cost. You can also start the pre-approval process, which can take several weeks as you need to provide financial documents to lenders.
4. Research neighborhoods and house prices
Home prices remain high in many parts of the country, so find out where you want to live and whether buying in the area of ââyour choice is affordable for you. By starting to search now, you can narrow down your search for the perfect property and increase the chances of getting an affordable deal that makes the purchase worthwhile.
5. Interview real estate professionals
Finally, you’ll probably want to work with a real estate agent who can help you through the buying process. Start talking to agents now, as it can take a while to find someone who is right for you.
With only a few months in 2021, you don’t have time to waste if you buy a home this year. Start checking these tasks off your to-do list today.
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