If you’re gearing up to buy in a home in 2018, it’s never too early to start taking steps now. While the holidays are in full force, there are simple steps you can take before you begin the big hunt. From monitoring your finances to finding a mortgage lender and more, these preliminary steps will pay off in the New Year.
1. Clean up your credit score.
If you’re buying your first home in 2018, you’ll soon learn that a good credit score helps tremendously in earning lower interest rates on your mortgage, which could save you thousands of dollars annually. Credit scores range from 300–850, with 740 being the minimum goal for you to reach. Factors, such as not paying your bills on time, can negatively affect your credit score. Now’s the time to clean up your credit score! Paying your bills on time and making efforts to reduce your debt-to-income ratio are a couple ways you can clean up your credit.
2. Beware of impulse purchases.
From Black Friday to all of the holiday sales that will flood retail stores over the next couple months, it can be tempting to purchase items because they’re a “good deal” or if there’s incentive to save 20 percent extra on your purchase. You’ll also be asked to apply for credit cards when shopping this season. However, falling into these traps can hurt your credit score. A good rule of thumb for spending on credit is to not be using more than 30 percent of your available credit. As a side note, opening additional credit cards can have a negative impact on your mortgage application.
3. Start building your emergency fund.
While it would behoove you to already have an emergency fund in place already, it’s never too late to get a fund started. When you buy your home in 2018, there are much more financial responsibilities than your mortgage and down payment. As a new homeowner, there will be unexpected home repairs, moving costs and other monetary surprises. To build your emergency fund in addition to saving on your own, you can suggest financial gifts this holiday to put toward your home.
4. Choose your mortgage lender.
Sure, it’s tempting to begin your home search online, but it’s more wise to start the process by choosing your mortgage lender. Your mortgage lender will be able to get you preapproved for a loan amount so that you can better perform your home search by staying within your means. You can find a mortgage lender by consulting your bank or real estate agent.
5. Get your preapproval letter.
Preapproval letters can be obtained from your mortgage lender once they assess your financial documents and determine how much you can afford on a home. You then present this letter to sellers as confirmation that you can actually afford to purchase their home. Here are the items you will typically need for a preapproval letter: recent paystubs, tax returns and W-2 forms, rental or mortgage documents from your current home, a list of all debts and a list of all assets.
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