You have likely heard the saying that you may never make another single purchase as large as that of home. With that in mind, you may need to take some time to focus on the financial aspect of home-buying. Even a tiny mistake could end up costing you a ton of money, so it pays to approach this task carefully. Before you allow visions of your dream home to cloud your vision, take a look at some tips to ensure that you are financially sound enough for that big purchase.
Pay attention to your credit score. This may be the most important aspect of home-buying and is one that is often overlooked. Why is it so important? Any step you take to improve your credit score has a positive domino effect on your entire financial situation. For example, if you pay down your credit card debt, it not only raises your score, but allows you to enter your home-buying experience with a lessor debt load. A high credit score is a must-have to get a decent interest rate on your home loan, where even a small percentage can make a difference of thousands of dollars when you consider the life of the loan. Fortunately there are several things you can do to improve your credit score, like:
1. Make sure you are not even a single day late when paying your credit card bills and other loans.
2. Pay down your credit card balances to almost nothing.
3. Have a good mix of credit cards, vehicle loans and perhaps a personal loan, and be sure not to utilize 100% of the available credit of any one creditor.
Pay down your debt. Although mentioned above, it deserves another look. Lenders don't just look at the total amount of your debt, but other things like what percentage of your monthly bills go towards paying off that debt. The less your monthly debt obligation, the greater your numbers look. When you hear the the term "ratios," that is referring to this computation, your debt utilization and to how much of your budget a given mortgage obligation would comprise.
Don't apply for more credit. There is such a thing as too much available credit. Lenders see credit as rope to hang yourself with, and too much available is not a good thing. Additionally, applying for credit before you get approved for your loan could bring your credit score down.