Nervous they might say ‘no’ to a home loan right now?
If that’s the case, you’re not alone. Many buyers are intimidated to reach out to a lender. Mainly because you might be afraid about one of 2 big things (or both)— the down payment and your credit score.
Here are a few tips to help you prepare for that first home purchase in case you’re not quite there yet.
If you’ve been just trying to keep your head above water with your expenses and are living paycheck to paycheck, then try automating your savings.
Set up your checking account to automatically save a small amount of your paycheck into a separate savings account or ‘house fund’.
Amassing enough for a down payment takes discipline & perseverance, but setting up automatic savings can make it easier. If you never see the cash, you won’t spend it.
#2 – Build Your Credit History & Keep It Clean
When you go to apply for a mortgage, lenders will want to see that you have been able to pay off past debts. This means staying on top of your student loans, credit cards, and car loans and paying them on time! Credit bureaus recommend using no more than 30% of the credit available to you.
If you’ve been good at making these payments on time every time, consider asking for a credit line increase from your credit card company. They can typically approve one over the phone. Don’t be tempted to spend the extra money though if you get approved. Keeping your balance low reduces your debt ratio and improves your credit score.
#3 – Practice Living on a Budget
Downsizing your spending now will allow you to save more for your down payment & pay down other debts to improve your credit score. A study by Bank of America showed that “95% of first- time buyers were willing to make sacrifices to buy their home faster.” The top 3 sacrifices cited by Millennials when saving for a home are: cutting back on new clothes, a new car, and travel.
Lenders goal is to help you reach your homeownership goals. They actually WANT to make you a home loan. If you are a high risk loan right now, don’t be afraid to ask them for advice on how to improve your lending status. Consider them a coach in this process and lean on them for help. It’s fine if you don’t have all your ducks in a row yet. With help, you will be on your way to getting approval in no time!