Exploring Investment Strategies

Posted on: 3 June 2015

Buying a house is one of the largest purchases you will probably make during your lifetime, and it's always important to make sure you are ready for this big step before jumping into it. In most cases, it takes a couple years of planning to reach the point of being ready to buy a house, and here are two ways you can plan for this day in advance.

Work On Your Credit

To qualify for a good home mortgage, you may need to do some work to boost your credit score. Lenders may look for credit scores that are higher than 740 before they are willing to give out home mortgages. If your credit score is at least 620, you might still qualify for a home loan; however, you probably will not qualify for the best rates.

Before you go shopping for a mortgage, get a copy of credit report and begin trying to fix it. Here are three tips that may help you increase your score over the next year:

1. Avoid applying for new credit – Every time you apply for credit, a hard credit inquiry is added to your report, and each of these lowers your score. Hard inquiries remain on a person's credit report for two years after they take place, but after one year they have very little effect.
2. Pay off debt – Another way to boost your credit score is to pay off some of the debt you have. Part of your credit score is made up of the amount of debt you owe compared to the amount of your credit lines. To improve your scores, keep the high limits on your credit accounts, but pay off some of the balances to keep this ratio as low as possible.
3. Fight any errors – If you notice any problems with items on your credit report, fight them. This process takes time, which is another reason to start working on your credit quickly.

In addition to fixing your credit, you will also need to prepare yourself in other ways before you buy a house.

Save Up Money

One of the most important things to work on is saving money. While it is possible to get a home mortgage without making a down payment, it is better if you can put money down on the house. By making a down payment, you will receive the following three benefits:

1. Lower mortgage payments – Your payments will be lower simply because you will borrow less money on the house.
2. No primary mortgage insurance (PMI) – In most cases, people will pay PMI if they borrow more than 80% of the value of a house. To avoid this, put a 20% down payment on the house when you purchase it.
3. Pay less in all – Because of the way compound interest works, you will pay so much less for the house if you can find ways to borrow less money.

It is usually easier to get a home mortgage when you have money to put down and if you have good credit, but there are several other things you should know about mortgages. The first is that lenders base loan amounts on income. You will need to be able to prove that you have steady, reliable income to pay your mortgage.

Another thing lenders look at is your debt-to-income ratio. This is calculated by comparing the amount of money you make to the debts you have. This ratio should be less than 43% if you want to qualify for a good rate on a home loan.

Preparing to purchase a home takes time, and you may want to start a year or more in advance. By doing this, you will be better prepared to apply and qualify for a good mortgage. To learn more about home mortgages, contact a lender in your area or look at sites like http://www.firstmortgagecompany.net.