Your Home-Buying Journey Begins With These 4 Steps
If you’re a first-time homebuyer, the journey to homeownership begins with your credit score. Without a healthy credit score, securing a mortgage will be difficult. Before you start looking at houses, there are a few things you need to do to make sure your credit is in good shape.
1. Know Your Credit Score
Your credit score is a crucial factor in buying a home, and it’s essential to know your score before you do anything else. Check your FICO score and reports from all three credit bureaus. Knowing your FICO score and what’s in your credit reports will give you an idea of where you stand financially and what interest rate you can expect to get on a loan.
2. Improve Your Credit Score
If you have any blemishes on your credit report, now is the time to work on repairing them. The higher your credit score, the lower your interest rate, so you must improve your score before applying for a mortgage.
If you find any errors in your report, dispute them with the appropriate bureau as soon as possible. To qualify for most types of loans, you’ll need a minimum FICO score of 620.
Once you know where you stand, you can start working on improving your score if necessary. There are a few things you can do:
- Pay all of your bills on time, including utilities, credit cards, and other loan payments.
- Keep your credit card balances low. Ideally, you should keep them below 30% of your credit limit.
- If you have any collection accounts or late payments, work on paying them off as soon as possible.
- Avoid opening new lines of credit unless necessary. Every time you open a new account, your credit score takes a minor hit.
3. Save For A Down Payment
Saving for a down payment can take some time, so you can start working on this while getting your credit in good shape. The average down payment for first-time homebuyers is 6% of the loan value. However, if you qualify, FHA loans require a minimum down payment of 3.5% for FICO scores of 580 and higher.
4. Go Mortgage Shopping
You can start looking into mortgages while saving for a down payment. An online tool such as Credible can help you compare mortgage rates and terms from multiple lenders in just a few minutes. Before deciding, shop around and compare at least three different offers.
Following these four steps ensures that you’re in good financial shape to buy a house. Remember to take your time, do research, and stay within your budget. With a bit of preparation, you’ll be able to find the perfect home.