Buying a home for the first time can be a daunting process, especially in today’s market, where housing inventory is limited and home values are high.
If you’re looking for a new home — and a mortgage to finance it with — it’s important to know how to position yourself as a strong borrowing candidate. It’s also essential to buy a home that works for you financially. Here are some tips from Emanuel Santa-Donato, VP, Capital Markets & Lead Acquisition at Better, to help you navigate your first home search and mortgage application.
1. Set a budget and stick to it
Buying too expensive a home can leave you with a heaping mortgage payment you might struggle to keep up with. That’s why setting a budget ahead of your search is important.
As Santa-Donato explains, “At the end of the day, you’re the one left paying the bills, so you want to ensure you set yourself up for success. Many homeowners get swayed into spending above their budgets, which only leads to headaches later on.”
To guide your search, Santa-Donato recommends figuring out what amount you can afford to spend on all of your expenses of home ownership, including:
- Property taxes
- Homeowners insurance
You can use a mortgage calculator to see what your principal and interest payments will look like based on your loan amount, down payment, and interest rate, and then factor in those other numbers to nail down your specific budget.
2. Boost your credit score
Mortgage lenders like Better tend to favor candidates who come in with strong credit. After all, your credit score speaks to how trustworthy a borrower you are, and lenders tend to reward strong borrowers with low interest rates on their home loans.
One of the best ways to raise your credit score is to pay all incoming bills on time. Additionally, make sure to check your credit report for errors, and correct mistakes that could cause a lender to deny you a loan or stick you with a higher interest rate than you want. If, for example, there’s a delinquent debt on your credit report that you never racked up, that’s the sort of thing you’ll want to address immediately.
3. Pay off some existing debt
Though lenders take credit scores into account when approving mortgage candidates, they also focus on existing debt. That’s where your debt-to-income ratio comes in. That ratio measures your existing debt relative to your income, and the higher it is, the more of a red flag it serves as. Paying off debt, on the other hand, can help bring that ratio down into more favorable territory and give a lender more confidence in your ability to keep up with your home loan payments.
4. Seek out mortgage pre-approval
In today’s housing market, getting pre-approved for a mortgage is especially important, because it sends the message to sellers that you’re a serious buyer with the means to make good on an offer. In fact, if you’re duking it out with a competing buyer over the same home and you’re the only one with a pre-approval letter, that gives you a…