Before you can buy a house, you will need to make sure that you are in good financial shape so you can qualify for a home loan. There are a number of factors that can affect your ability to get a home loan with a good interest rate, and there are many ways you can prepare for this event. Here are three good things you should do as you prepare to buy a house sometime in the near future.
Don't switch jobs
One of the numerous factors lenders consider when reviewing home loan applications is a person's job. Lenders like to see consistency with income, but they also like to see stability in a person's job history. Most lenders will want to know where you have worked for the past two years. If you have had the same job during this time, it will appear favorably to the lender. If you have switched jobs, it could draw a red flag and make it a little harder to get approved for a loan. When you prepare to buy a house, you might be better off keeping the job you have right now and switching sometime after you get the loan.
Pay off debt
Most lenders agree that a person's debt-to-income ratio is the most important factor considered when reviewing a loan application. This ratio is used to see how well a person manages his or her money, and it will reveal a lot about a person's financial state.
You can determine what your current debt-to-income ratio is by dividing your regular monthly debts by your monthly income. If your ratio is over 36%, you will need to lower it before you apply for a loan, and the best way to lower it is to pay off debt you have.
Not only is this a good way to improve your debt-to-income ratio, but getting debt paid off prior to getting a home loan is a great way to make sure you will be able to afford the house you want to buy. By doing this, you will have fewer payments to make each month, and this will free up more cash for you to afford your new home.
Build your credit
The third best thing you can do before you apply for a home loan is build your credit. If you haven't checked your credit in a while, check it now. This is the only way you will know where it stands and what changes you can make to improve your score.
For more information, contact Marty Fekete or a similar mortgage professional.