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Preparing for Homeownership
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Financial Expert
Posted August 17, 2018
Are you planning on buying a home in the next five, ten, or even fifteen years? The purchase of your first home is a huge milestone and not something that should be taken lightly— it’s never too early to start thinking about your future or the big purchases that lie ahead of you, small steps now can turn into big results later.
Build positive credit
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A high credit score is ideal when applying for any new loan, that’s something most people know, but do you know why it’s important and what impact it can have on your mortgage?

Not only do lenders look at your credit report and credit score to gauge the risk of approving you for new credit, but your credit score will typically determine what interest rate you will receive on a loan. A person with a good credit score could potentially save thousands of dollars in interest over the life of a mortgage when compared to someone with a less favorable credit score.

Equally as important to your credit score is your credit report. While reviewing your mortgage application, your lender will look at factors on your credit report, such as payment history, your debt to income ratio, and length of credit history, to determine how you have handled loan payments in the past and decide if you have shown the willingness and ability to take on a new obligation.  

Building positive credit takes time and determination, but if you commit and start working on it now, it will put you in a more favorable position when you are ready to purchase a home.
Save for a down payment
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A down payment is the sum of money that you, as the purchaser, pay towards the principal of a house at the home closing. In other words, it’s the cash that you front for your home and take out a mortgage for the remaining portion. For example, if you are purchasing a home for $100,000 and put 20% down, your cash down payment would be $20,000 and then you would take out a mortgage for the remaining amount that you owe, which in this case, would be $80,000. The more cash that you have to put down on a house, the more comfortable your lender will feel with the financing of your home.

Saving for a down payment can be daunting since it’s a large sum of money that you’ll have to save, a lot of people don’t know where to start, but that’s just it, you have to start! As much or as little as you can, put a portion of your paycheck into a savings account and before you know it, that down payment will begin to grow and you’ll be closer to your goal!
Reduce debt
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You don’t have to be completely debt free, but you should pay down your existing obligations. Your Debt to Income (DTI) ratio is calculated by dividing your total monthly payments by your gross monthly income. Your DTI is what your lender will look at to determine if you are able to take on additional debt.

In addition to paying down existing debt, don’t apply for any new credit during the mortgage process unless you are given the “go ahead” from your mortgage officer. If you take on additional debt without consulting your mortgage officer first, your approval could be derailed.  
For additional information on financing a home, visit
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