Buying a home is a thrilling time in a person’s life, but it’s not a situation you want to jump into without preparation, particularly if you have debt. If you’re planning to buy a home within the next year, there are steps you can take to better your position and make you eligible for better loans at lower rates. Use this list of ideas to get your finances on track and ready to take on homeownership.
1. Run Your Credit Report
When assessing buyers, lenders typically look at credit scores, employment history and salary, debt-to-income percentage, credit usage and other credit factors. Before you can know what needs your attention, you have to get an accurate picture of where you stand. Credit reports are free to obtain and let you see how potential lenders will view you. While credit scores are only one part of the big picture, it is an important one, and a low one can cause you to be ineligible for some kinds of mortgages.
2. Improve Your DTI
While there isn’t much you can do about your employment history, you could request a raise to increase your monthly income. Debt-to-income ratio is one of the most important factors when applying for a loan, as there are hard numbers that lenders won’t approve above. If you can increase your income or decrease your monthly debts, you’ll put yourself in a better position when applying.
Although paying off accounts is one way to decrease your monthly payments, there are other ways, as well. Using a balance transfer credit card can allow you to pay off your credit card debt at a lower rate, with many offering 0% interest for introductory periods of time. You can also take out a personal loan or refinance current loans to get lower payments. This benefits you by decreasing your DTI while also giving you more money you can use to pay off other debts or put toward your future down payment.
3. Pay Down Debts
If you have significant debts, paying down what you can prior to applying for your mortgage can improve your standing. While it’s unlikely you can pay down all your debts before you buy, you can make progress by using the snowball method of debt repayment.
When using the snowball method, you focus on paying your smallest debt down first. Once it’s paid off, you roll the money you would’ve spent on its monthly payment into the payment for the next biggest debt until it’s paid off, continuing the cycle until you are debt-free. Seeing debts paid off can help encourage people to continue paying down debts as they see real results.
4. Protect Your Assets
If you’re a business owner, buying a home takes on another layer as your assets can be considered fair game if a problem arises with your company and you don’t have the right protections. Filing for a limited liability company or LLC, which you can do yourself by using an online formation service, can help install a protective layer between your business and your personal belongings. LLCs also offer tax advantages such as pass-through taxation and limited paperwork. Check the rules in Georgia before filing, though, as regulations can vary between states.
Don’t be discouraged by your current financial status. Take steps to improve your position so that you can get the rates you desire. With smart moves, concerted effort and support from BrownDaniel Group, you’ll be closing on your dream Atlanta home in no time. Call (770) 630-5430!
– Contributed by Brittany Fisher