Whether you’re recovering from a personal bankruptcy filing or simply trying to prepare your finances for buying a home, you may have wondered what kind of financial preparation you should do in order to maximize your chances of getting an affordable mortgage. And, with many mortgage lenders wary right now, it’s wise to plan ahead if you’re ready to buy.
Here’s a look at some tips for potential homebuyers, adapted from an article from WalletPop.com.
Before You Fill out Application Paperwork
- Get rid of debt. If you have debt from student loans, credit cards, a car or anywhere else, it is negatively affecting your debt-to-income ratio. In order to raise your credit score and thus improve your chances of getting offered a mortgage loan, you need to pay down as much of that debt as you can.
- Check out your credit. If you haven’t checked your credit report in a while, it’s essential to do so now. To check your credit for free, visit www.annualcreditreport.com. Review your credit report for any inaccuracies and, if you find any, follow the procedures indicated for contesting them and having them removed (hint: you’ll have to contact the credit bureaus in writing). You may even want to buy your credit score to get an idea of how lenders will rate you.
- Hold off on major purchases and credit applications. Avoid applying for new lines of credit (which can hurt your credit score) or making major purchases (which can act as a red flag to a lender) until you’ve closed on your house. Many lenders check your credit at the beginning of the lending process and again before closing on the deal.
- Make a bigger down payment. This may seem like a pain right now, but paying more up front can save you thousands of dollars in interest payments down the line. If you don’t have the means to make a very big down payment, either save up until you do (and thus wait to buy your home), or consider borrowing money from a family member who won’t charge you interest.
- Get your paperwork in order. Applying for a mortgage will require you to present tax forms, pay stubs, proof of assets, credit documents and more. Find out what information will be needed and get it all together. You might want to make copies and keep them neatly filed (in a safe place) so that you can be ready to refer to them at short notice. Presenting yourself as an orderly, well-organized individual may help you “prove” yourself to a lender.
- Don’t expect a quick fix. Buying a home is a long process (many mortgages have 30-year repayment periods, remember?), so don’t rush into it before you’re ready. Taking an extra year or two to save money and rebuild your credit could end up saving you thousands of dollars in interest payments down the road.
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Posted April 1, 2011 by Amelie Hampton under Bankruptcy Articles