Home Lending with Lindsay: Your Tips for Homebuying Financial Readiness
We asked Lindsay Simmons Beale of The Simmons Team for her expert advice on all things lending. Below she discusses how to arrive ready and prepared when it comes to homebuying with financial confidence. Lindsay is not only an über-experienced lender, she is an avid horsewoman! Enjoy Lindsay’s quick guide to homebuying financial readiness below and catch a sneak peek of her doing what she loves.
From Lindsay and The Simmons Team
Owning a home is a significant milestone in many people’s lives symbolizing stability, security, and the realization of long-term goals. However, before diving into the realm of home ownership, it’s crucial to assess your readiness. From financial preparedness to stable employment, several factors play a pivotal role in determining if you’re ready to embark on this journey. In this quick guide, we’ll delve into three key considerations to ensure you’re well prepared for the initial steps in the home buying process.
- Getting pre-approved early
One of the first steps in preparing for home ownership is obtaining preapproval for a mortgage loan. This involves working with a lender to determine the amount you can borrow based on your financial situation, credit history and other relevant factors. Be careful! Pre-approval differs from pre-qualification! Pre-qualification determines your ability to repay a loan based stated asset and income information you provide. Pre-qualification often takes only minutes online or by phone, and while it can give you an idea of what you may be able to borrow, it does not involve a detailed analysis of your credit and finances. Getting pre-approved early offers several advantages:
- Clarity on Affordability: Preapproval helps you understand your budget and the price range of the homes you can consider, enabling you to focus your search on properties within your financial means.
- Competitive Edge: Sellers often prefer buyers who are pre-approved as it signifies seriousness and financial capability, giving you an edge in the bidding competition.
- Faster Closing Process: With pre-approval in hand, the mortgage process can move more swiftly once you find a home, potentially reducing the time it takes to close the deal.
No surprises: Not being fully pre-approved could jeopardize losing your earnest money deposit!
2. Better credit score equals a better rate
Your credit score plays a significant role in determining the interest rate you’ll receive on your mortgage loan. A higher credit score typically translates to lower interest rates, saving you thousands of dollars over the life of the loan. Here’s how you can improve your credit score:
- Monitor your credit report: Regularly review your credit report to check for inaccuracies or discrepancies that could negatively impact your score. Correct any errors promptly.
- Pay bills on time: Payment history is a crucial factor in your credit score. Make sure to pay all bills including credit cards, loans and utilities on time to maintain a positive payment history.
- Reduce debt: High levels of debt relative to your income can lower your credit score. Work on paying down existing debt and avoid taking on new debt unnecessarily.
- Keep credit utilization low: Aim to keep your credit card balances well beyond their limit. High credit utilization ratios can indicate financial stress and lower your credit score.
By diligently managing your credit and maintaining a good score, you’ll not only qualify for better mortgage rates, but also have more financial flexibility in other areas of your life.
3. Stable employment
Lenders look for stable employment history as part of the mortgage approval process. For W2 employee’s, consistent employment with the same employer for at least two years and/or proof one was in school during the prior period to starting your employment is typically sufficient. However, if you’re self-employed or work on a contract basis (1099), lenders may require additional documentation to demonstrate stable income:
- Two years of tax returns
- Profitability and sustainability of your business
- Consistent earnings over the past two years
Preparing for home ownership involves more than just finding the perfect property. It requires careful consideration of your financial readiness, creditworthiness and employment stability. Be sure to take the time to assess your readiness and address as many areas of concern as possible in order to embark on your journey to home ownership with confidence.
Visit our website to see how we are uniquely positioned to help more people take the next steps toward homeownership through our loan options, community programs, and support. Keep a look out for our next blog editions covering creative financing and competitive offers!
Be sure to tell them Scout sent you!
THE SIMMONS TEAM
Lindsay Simmons Beale
703.969.0793
[email protected]