Updated: Dec 30, 2019
Will 2020 be the year you finally become a homeowner? Congratulations! Owning a home brings with it a sense of pride and accomplishment — especially given the stressful moments that can arise during the buying process. The trick to making that process go as smooth as possible? Be prepared.
The best New Year’s resolutions for homebuyers are going to be those steps you can take now to save yourself from stressful moments, delays, and added expense later. If you’re going to take the plunge into homeownership in 2020, these are the five resolutions you should make for your new year.
1. Fix Your Credit
How’s your credit? It’s one of the first questions you’ll be asked when you get serious about buying a house. A FICO credit score above or below 740 can mean the difference between being able to buy the home of your dreams or having to go with a more conservative alternative. No pressure here.If you’re a prospective homebuyer, resolve to get your credit in order in 2016.Start by getting current on any bills on which you’re behind. Signing up for automatic bill pay can help if you tend to miss due dates. If you have any bills that have been sent to collection, pay them off, no matter how small.Don’t apply for any new credit in the run-up to buying a house or at any point before closing. Each new line of credit, be it a car loan or store credit card, can ding your credit score.
Reduce the balances on any credit cards you do have. Your credit score is helped by having these credit cards, as long as you keep your balance-to-credit-line ratio in check. If you can’t pay down a higher balance card, transfer part of the balance to another card.
2. Shore Up Your Savings
Regardless of how great your credit is, as a homebuyer, you’ll need access to cash on hand. Not only will you need sufficient funds for a down payment, but you’ll also need cash reserves to satisfy the lending requirements of some lenders and money to cover closing costs and other ancillary fees that are part of buying a home.When it comes to a down payment, each buyer and home purchase are unique. Some buyers can qualify for low- or zero-down payment home loans while others will need to pay 10 or 20 percent down. You can expect to pay a higher down payment with a jumbo loan or any atypical loan, such as stated income loans. Some FHA loan program requirements can be as low as three percent, and veterans can do even better, thanks to zero-down-payment programs.Even if you can qualify for a zero-down loan, you still may need to show you have cash reserves. This could be anywhere from six to 12 months of living expenses, basically showing that should you lose your job, you’ll still be able to keep your loan in good standing while you regroup.Though some lenders may allow you to wrap some fees into your monthly mortgage payment, it’s likely you’ll still be writing several sizable checks at the closing table. Get your savings in order now, and you won’t need to stress about it later.
3. Research Loan Programs
While homebuying may seem like a traditional financial move to outsiders, there’s a surprising amount of innovation happening in mortgage loans. From the VA’s zero-down program to jumbo loans, traditional bank lending to online non-bank lenders, and a variety of home choices, there are a lot of factors to consider.A mortgage broker and real estate agent can help guide you along the way, but you’ll save time and money if you start doing your own research now. Some reputable resources are available online to help you make sense of the many options. The Department of Housing and Urban Development’s guide to homebuying offers information from the government perspective, while sites like FHA.com (not affiliated with the Federal Housing Administration), Bankrate.com, Quicken Loans, and Investopedia offer comprehensive guides to homebuying and mortgage lending.While it’s not a must to know exactly what loan program you’ll pursue before contacting a professional, knowing whether you’ll need a jumbo loan, what types of lenders you prefer, and what type of property you intend to buy will put you ahead of the game when you’re ready to get serious about your home search.
4. Get Your Documentation Ready
When it is time to apply for a mortgage, you’ll be asked for a slew of documents to prove your earning history, income, and assets. If you’re planning to buy this year, minimize your stress later by starting to gather this documentation together in one place now.Bankrate has a handy list of the standard materials to gather, which include two years of tax returns and W-2 income statements, recent pay stubs, credit card statements, and bank and investment statements. If your loan program research has steered you towards one of the more exotic home loan products, you can find a list of typical requirements for these loans on Colin Robinson’s Truth About Mortgage blog.
5. Get Pre-Approved
Your first four resolutions of the year will get you ready to start your homebuying journey, which for many starts with loan pre-approval. For a pre-approval, you’ll submit your financial documentation and fill out a preliminary mortgage application. It’s a more thorough process than pre-qualification, which is a cursory review of your finances without verification or guarantee of financing. However, with pre-approval your financial institution will give you a letter stating a specific dollar amount you’re approved for as well as a likely mortgage rate and loan program.Once you start looking at homes, you’ll find that many sellers and their agents will ask if you’ve been pre-approved. That pre-approval letter signals to real estate agents and sellers that you’re serious about buying a home. It’s one step closer to finding the perfect home and making 2020 the year you finally become a homeowner.