You’re thinking of starting an exciting new chapter and buying your very first home. But before you begin, it’s important to have all your ducks in a row and be ready financially.
For many first-time homebuyers, a big question is how important their credit score is. While credit is important to your purchase, you may not need as high of a credit score as you think. “Many buyers believe that if they don’t have good credit, they won’t be able to get a mortgage,” says Hilla Sferruzza, Meritage Homes Chief Financial Officer. That’s not always the case; there are programs that can help.
In the meantime, here are a few things to start doing—and a couple of things to avoid—to help you improve your purchasing power and get one step closer to homeownership.
Don’t switch jobs
When it comes to getting your mortgage application approved, your employment and income are two of the most important factors underwriters consider. Even if your loan has been approved, many lenders will do a final check to verify your employment and income haven’t changed. Lower pay could affect your chances of obtaining or keeping a mortgage.
“Many buyers believe that if they don’t have good credit, they won’t be able to get a mortgage.”
Hilla Sferruzza, Chief Financial Officer, Meritage Homes
Avoid major purchases
Don’t make major purchases on a credit card or get a different type of loan between pre-approval and closing—this includes car loans and vacation reservations. Doing so could affect your debt-to-income ratio, and therefore your purchasing power.
Keep credit cards to a minimum
Don’t open multiple new credit cards in an attempt to create more available credit lines. Every time you apply for a card, the issuer checks your credit, which is considered a hard inquiry on your credit report and can affect your score.
Buy less house than you can afford
You may be approved for a certain amount, but lenders don’t take into consideration your expenses such as daycare, auto insurance, and medical payments. Additionally, if you buy a house at the top of your budget, it won’t leave any wiggle room for an emergency fund or savings. Just keep this in mind: as a general rule, you want to spend no more than 30 percent of your monthly gross income on housing.
Don’t focus on just your credit score
While a minimum credit score is important when buying a new home, putting an actual number on it can be misleading. “Doing this can lead to potential buyers disqualifying themselves from the homebuying process just based on that value,” says Brian Hall, Meritage Homes President of Financial Services. “Take the time to get pre-approved.”
For additional assistance on getting financially ready, expert guidance is available for most homebuyers through MTH Mortgage’s Financial Solutions Program. The complimentary Financial Solutions Program gives customers with less-than-perfect credit the tools they need to purchase a home by helping them clean up their credit profile and determine which loan is best for them. Buyers who are interested can pre-qualify on the website.
