1. Choose Monthly Subscriptions Carefully
Although monthly service subscriptions can be convenient, they sure do add up. Even if you pay off your credit card every month, you could be penalized for high credit utilization if your credit report is pulled mid-cycle. If you’re considering purchasing a home this year, keep your monthly subscription services to a minimum.
2. Maintain Your Employment
Employment history and income are two of the biggest factors lenders look at when evaluating a mortgage application. A new job may be a good career move, but if you plan to buy a home in the new year, know that job-hopping can be a red flag to some underwriters — especially if you’re moving to a different industry. A steady job history and few or no gaps in employment over the past two years are ideal, as it helps lenders more easily forecast your future income. If you do get a new job while home shopping, let your lender know as soon as possible. It doesn’t mean you won’t qualify for a mortgage — just be prepared to show extra documentation.
If you’re moving from a commissioned or hourly job to one that’s salaried with equal or more compensation, it may help your application. Lenders often prefer borrowers to have steady, predictable paychecks.
3. Build a Robust Credit History
One of the first things a lender will look at is your credit history. Lenders prefer borrowers who have a history of paying off credits cards and other debts on time — because it indicates that you’re a responsible borrower and less of a risk. If you don’t have credit, securing a home loan may be significantly more challenging and time-consuming, but not impossible. Records of paying rent and utilities on time, as well as student loan debt or cell phone bills, can help show a potential lender that you have a history of managing monthly payments.
4. Know Where You Stand
Your credit score can have a significant impact on your ability to buy a home. A low credit score can negatively affect how much money a lender is willing to loan you, as well as your interest
rate. Just a few percentage point differences in an interest rate can cost you thousands over the life of a loan. Monitor your credit closely, especially for fraudulent activity, to prevent any surprises
that could delay the loan application process.
If you’re unsure of your credit score, many financial websites offer credit score monitoring, or you can get a full credit report once a year.
5. Put Major Purchases on the Back Burner
Avoid taking on large amounts of debt — whether it’s buying a car or planning a large vacation — before buying a house. This is advisable even if you’re already pre-approved.
Your debt-to-income ratio, 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 the home-buying process go a lot more smoothly. Just like proofreading your resume before you apply for a job, cleaning up your financial resume can help improve your chances of buying a home.