For renters who have decided that 2019 is the year to take the plunge into homeownership, they'll have plenty of company -- especially in the form of millennials. This is the segment that is increasing the demand for entry-level housing. Whether you consider yourself to be a millennial or not, there are a number of things you can do now to make the process of purchasing a home go more smoothly.
Start Early
It's a good idea to give yourself at least a few months to prepare before you actually start looking for homes and pre-qualifying for a mortgage. Not only can starting early give you more time to gather together the necessary paperwork, but you'll also appreciate the ability to work out any unforeseen kinks that might arise.
Be Careful with Credit
One of the first things you should do is obtain a copy of your credit report. According to the Federal Trade Commission (FTC), everyone is entitled to a free copy of their credit report from each of the three companies that perform credit reporting in the United States. You can request a copy from each company once every 12 months. Use annualcreditreport.com, which is the only website that is authorized to provide free credit reports.
A good credit score is important for many reasons. First, most lenders base their approval decisions -- at least in part -- on your credit score. Not surprisingly, a great credit score can also net you a better interest rate because you're considered a low-risk borrower.
If you're like many people, though, your credit report might show a few dings. Comb through each of the credit reports you receive and look for errors. Be sure to contact the company in question if you find any.
One way to improve your credit score is to pay down any credit card balances you have for a couple of months. During that time, avoid using your credit cards at all. In fact, it's best if you don't apply for credit of any kind -- that includes credit cards or a loan for a car or appliance -- until after you've closed on your home.
Gather Paperwork
Though your mortgage lender will need the most current employment paperwork and tax information available, you can still get into the habit of putting it aside so you're organized when the time comes. You'll need to verify every financial statement you make on the mortgage application. You can do this by making certain documents available including W-2's and/or paystubs from your employer or the past two years of tax returns if you're a freelancer.
Save for a Down Payment
You'll also need to save enough money for a down payment. While the actual amount can vary, a good rule of thumb is 20 percent of the purchase price. Be sure to put it in a savings account that you can easily access when you need it.
Follow the above rules to get your financial "house" in order and you'll find that the home buying process is easier as well.
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