When you get advice on buying your first home, you usually get information on how to find financing and how to plan your move. But for first-time home buyers, information on how to handle your finances between the time you get pre-approved and apply for your mortgage can be just as valuable and important.
Step One – Clean Up Your Credit
Federal law says that every American consumer can request one free and full credit report from each of the three major credit reporting agencies (Trans Union, Experian and Equifax) every 12 months. You should order all of your credit reports and read them for accuracy. If there are accounts you do not recognize or if your personal information is wrong, then use the process to dispute information outlined on your report and get that information corrected.
You should also look to see when the bad items on your credit report fall off. If waiting six months means your credit score will improve because some of your bad credit items will no longer be on the report.
Once your credit is as clean and strong as you can get it, your next step is to get pre-approved for your mortgage. While you might want to give your big business to your bank, do not be afraid to shop around for a better deal. If another lender is offering a special interest rate or deal for first-time home buyers, then you should take advantage of it.
Establish A Real Budget
Your pre-approval is going to tell you how much you can spend, but what you want to do is establish a budget based on what you really can spend. Just because the lender is telling you that you can afford a $1,000.00 per month mortgage payment does not mean you should spend that much. Sit down with your real estate agent and establish a budget that makes sense based on your financial resources.
Avoid Unnecessary Spending
When you are pre-approved for a mortgage, that does not mean that you will automatically be approved for that much. If, between the time you are pre-approved and you apply for your mortgage, you damage your credit score then you will not get approved for the mortgage you want. After you get pre-approved, you should control spending and avoid any activity on your credit profile such as opening a new bank account or spending on your credit card.
Too many first-time buyers think that a pre-approval means they can start running up their credit cards buying furniture and other home items they need. Those same home buyers go into shock when they find out that their reckless spending cost them the financing for their home. Be responsible with your finances and you will be able to get the mortgage you need for your home.
First-time home buyers are always looking for advice on how to handle their finances while they are hunting for their first house. The best advice is to be prudent with your spending, clean up your credit report and don’t be afraid to shop around for funding to get the best deal.