After all of your hard work and careful saving, you're probably starting to look longingly at some of the beautiful Atlanta homes for sale. At this point in the process, a simple error in judgment could derail your plans. Our real estate agents want to help you avoid any such issues.
- Don't make a major purchase.
Lenders will check your credit before approving your loan. Buying a new car, furniture, or appliance will impact the loan in more ways than one. Not only will such a purchase lower your FICO score, but it will also increase your debt-to-income ratio or DTI. If your DTI increases to around 43%, you will be considered a risky borrower. If your loan is approved at all, it may be at a higher interest rate. Avoid making such purchases for at least six months to a year before buying a home.
- Don't build up credit card debt.
When trying to maintain a sizable savings account, you may fall back on credit cards. This is the worst financial decision you could make when planning to buy a home. Added debt will damage your debt-to-income ratio and lower your credit score, which can impact your ability to obtain a home loan or increase the cost of the loan. Pay credit cards off in their entirety when possible to show that you manage credit wisely. If you must replace an appliance or pay for a major car repair, it is better to take the cash from your savings than to add it to your debt.
- Don't change jobs.
Lenders look for steady employment. Switching companies or even careers in the two years before purchasing a home can raise questions about your creditworthiness. Lateral transfers within your company or, better yet, promotions won't be a problem. Switching companies within the same career field are not as much of a problem as changing careers altogether, especially if the move is from salary to hourly or commission based, as they signal fluctuating income.
- Don't wait until you have saved enough to cover a 20% down payment.
There are advantages to having a sizable down payment, such as avoiding the cost of private mortgage insurance, or PMI. But unless a buyer already has that cash on hand, waiting until it's available can cost more than it's worth. As home prices skyrocket, so will the down payment, constantly moving the goalposts. Fortunately, there are several opportunities for first-time home buyers to obtain a loan without a large down payment. Both VA and USDA loans do not require a down payment at all. An FHA loan requires just 3.5%, while a conventional mortgage requires 5% to 10%.
- Don't leave your mortgage to chance.
Getting preapproval from a reputable lender will save you a lot of heartbreak. Some sellers won't even show the home to a buyer that can't provide a preapproval letter. The process will allow you to shop for a home, knowing how much you can spend. With this letter in hand, you can look with confidence. You must also shop for a lender as carefully as you shop for the house. Not all lenders offer the same interest rates or closing costs. Typically, a mortgage through a bank will be more expensive than a mortgage lender, credit union, or broker. Take your time to find the best deal and get written quotes so that you can compare rates from several lenders.
Do you think you're ready to take the next step toward homeownership? Contact us, and our agents will help you find the home of your dreams.