A competitive market, low inventory and some pricey property can foster a whole host of financial calisthenics for first-time homebuyers. That doesn’t mean, however, that snagging that great first home is impossible. In fact, a few preparatory financial maneuvers early in the process can get you closer to that dream home that you think.
Jeff Divack, senior loan officer at Intercoastal Mortgage Company, says homebuyers should talk to a lender early but also be proactive on a number of personal financial fronts.
“Don’t move money around, even between your own accounts,” he says. “Check your credit—or, better yet, have a lender check your credit—as soon as you think you might be purchasing a home.”
This is extremely important, as credit report errors happen all the time and can affect loan approval. In addition, ensure your financial paperwork is organized and easily accessible, because a lender will need a variety of information from you. This should include pay stubs, your checking, savings, retirement, mutual fund and other account information and statements, W-2 tax forms and tax returns. But it could include more, so be prepared.
In this market, it’s often best to speak to a lender before you even start looking for a home. You will find out what you can afford, how much you can borrow and also estimate your monthly house payments.
One of the most important items you’ll get from your lender is a lender letter that basically can tell a prospective seller that you can afford the property for which you’re making an offer. In this market it’s crucial—particularly because homes often receive multiple offers, and sellers want to accept the strongest offer with the greatest assurance you will reach closing. Without that letter, a seller can assume you’re not a serious buyer.
“A good lender letter can position a buyer to be almost as good as a cash buyer,” Divack says. “Getting pre-approved to buy a house is vital; otherwise the buyer is completely unknowable to a seller.”
He notes that the biggest challenges for many in recent years are assets and credit reports. Lenders must determine where funds from large non-payroll deposits come from. (A multi-thousand dollar deposit from a family member just weeks before an attempt at loan approval can raise some red flags.) Also, Divack suggests keeping accounts free from excess activity, particularly moving money among multiple accounts. It creates confusion during the approval process.
Finally, he says not to dispute incorrect account information with credit bureaus, as it will create a credit score that can’t be used.
Regardless of when you’re looking for a home, it’s never to soon to ensure your financial house is in order. Most of it is common sense and not too complicated.
Pay your bills on time and limit personal debt, (don’t buy anything you don’t need on credit), and you’ll have a strong foundation on which to build an offer on your first home and improve your chances of getting it.