New Year’s resolutions. Most of us make them, few of us stick to them. But if buying a home is on your 2020 New Year’s resolution list, here is your new set of resolutions!
1. Credit is everything! Get your score as high as possible
Your credit score can make a significant impact on your ability to secure a mortgage for your new home. Your credit score will also determine your interest rate, so we recommend you check your credit report to make sure there are no errors, and that all accounts have been reported accurately and are up to date. Work on paying down your debts and credit card balances, and set up auto payments so that nothing falls through the cracks.
Increasing your credit score just a few points may not seem like a lot to you, but it could make a world of difference in your interest rate, and just a few percentage point differences in an interest rate can cost you thousands over the life of a loan. Check out the chart below, especially if you’re close to the next tier of credit score:
If you’re not sure where to start, ask us about our DIY Credit Repair Guide
2. Don’t quit your day job
When it comes to mortgage applications, employment history and income are two of the biggest factors in getting approved. A steady employment history with few or no gaps for the past two years is ideal, and allows lenders to easily forecast your future income.
Jumping from hourly to salary, or moving to a position in the same field that would increase your salary could help your application. However, know that job hopping can be a cause for a red flag to some underwriters–especially if you are switching industries.
If you do change jobs, let your lender know ASAP–it doesn’t necessarily mean you won’t qualify, just be prepared to show more documentation! Lenders often prefer borrowers to have steady, predictable paychecks.
3. Slow your roll on the monthly subscriptions
If you’re anything like us, you get a bill from Apple each month for all of the monthly subscriptions you have; Hulu, Netflix, Spotify, Apple Music…the list goes on and on. We get it–it’s cheaper than cable, and it’s super-easy to automate the payments so they are out of sight out of mind. But these can add up!
Even if you pay off your credit card every month, your credit could get dinged if your credit report is pulled in the mid-cycle. If buying a home is in your 2020 plans, check with cousin Steve to see if you can use his login for the next few months, and freeze your accounts.
4. Do not open or close any new accounts
Paying off credit cards is great to keep your debt-to-income ratio (DTI) low, but closing the accounts you have paid off can have a negative effect on both your credit history, and your available credit–which would negatively affect your DTI and credit score. Once you pay those cards off, just cut them up, and toss them out!
On the flip side, avoid opening any new lines of credit. While it is not the most heavily weighted factor in your credit score, having new card inquiries, or too many inquiries, could be a red flag in the mortgage process.
5. Steer clear of large purchases
Avoid taking on large amounts of debt. Your DTI, or how much money you make compared to how much debt you have, can significantly affect how much money a lender is willing to give you. Keeping debts to a minimum can help make obtaining a mortgage much easier.
If you’re thinking of buying a new car, planning a big vacation, or even furnishing your home–don’t do it. If you need a new couch, or another bed to fill your spare room, wait until after you have closed on your new home.
Do not spend your reserves, rack up a current card, or open any new accounts. Trust us, that nice new couch won’t look so good if you don’t have a new living room to put it in!
6. Start stashing cash
Not like, in your walls, or under your mattress, though. Your lender is going to want to see your last few months of bank statements, and a paper trail for any large deposits. So if you really do have a stash of cash under your mattress, get it in your savings account ASAP!
Don’t stress, the days of needing 20% downpayment for a home are long-gone. However, in most cases you will still need 3-5% down payment. In addition to down payment , you will have closing costs of roughly 2-3%.
Start stashing your spare change and extra cash into a savings account until you’re ready to buy. Every little bit counts!
7. Expecting a refund? Get your taxes done STAT!
If you’re expecting a tax return, and want to buy a home in 2020, then
this is not the year to procrastinate!
The sooner you get your taxes filed, the sooner you get your return. And your return can help speed your home buying process along. Whether it is paying down debts to help your DTI, helping with downpayment and closing costs, or making upgrades to your new home, the sooner you have the money back from the IRS, the better!
8. Research loan and grant programs
It is likely that when your parents bought their first home, they walked down to the bank and told the banker they wanted a 30-year fixed mortgage. Nowadays, there’s a surprising amount of innovation happening in mortgage loans. From the VA’s zero-down program to jumbo loans, as well as grant programs based on the borrowers income or job and grant programs based on the location of the home they are purchasing, there are a lot of factors to consider.
Each person will be different in what they can qualify for based off of these factors. The LKW Home Team has a list of preferred lenders available to our clients, who we work with everyday to get the absolute best terms for our clients.
9. Get documentation ready
Your lender is going to ask you for what seems like everything but your first born child. You will need to prove your income, all assets, and all debts. There will be a slew of documents your lender will need which include two years of tax returns and W-2 income statements, recent pay stubs, credit card statements, student loan statements, and bank and investment statements.
If you’re planning to buy this year, minimize your stress later by starting to gather this documentation together in one place now.
10. Get pre-approved
Once you check your credit, get your funds prepared, and your
documents around, it is time to get pre-approved!
Sure, jumping on Google and filling out a mortgage application seems quick and painless, but we recommend using a trusted, local lender, who will be available to you throughout your entire home buying process.
Once you start looking at homes, you may find that sellers and sellers’ agents will ask if the buyer is pre-approved. Having a pre-approval lets the seller and sellers agent know that you have already spoken with a lender, and that lender has verified that you can afford to purchase a home at a certain value. This not only shows that you have been proactive, and can afford the home, but shows the seller that you are serious about purchasing their home.
If you don’t know any lenders, just ask us! The LKW Home Team preferred lenders have access to many different programs, who are ready to help our clients get the best terms for them, while still staying in budget!
11. Schedule a free consultation with LKW Home Team
Hi, that’s us!
Our free buyer’s consultation looks like this: you (and yours if you want!), one or both of us, and a breakdown of the entire home-buying process. This is a one-hour consultation where we walk you through the home-buying process from start to finish, answer any questions you have, and take the next steps to get you set-up on a home search through our “in real time” apps, and the MLS.
We can meet you on your turf, or ours. Either way, you will leave with loads of information, and the confidence to start house hunting.
We are full-time agents who only sell real estate, and we are in your corner 100%. We will educate you on the basics, and leave the sticky stuff up to us. We got you!
12. House hunting
Insert, the fun part!!
We know the second you decided to buy a home, you’ve been glued to HGTV. Don’t watch House Hunters. We still can’t figure out how a butterfly breeder and a professional Monopoly player can afford $950K, but hey, maybe the Columbus market is just more affordable?
It’s as easy as this–when you see a home you like and want to see, you let us know and we will take you through. Cool? Cool.
Thinking of Real Estate Investing or even becoming a Real Estate Agent? The LKW Home Team would be ecstatic to get your real estate profile started or expanded, and help you get your real estate career into gear, so reach out to Jenn Kessel-White and Lauren Lucas at [email protected] or text /call (614) 321-9262