Did you know that an astonishing 250 babies are welcomed into the world every minute of every day? It’s no surprise, then, that 17% of all American adults plan to purchase a home in the next 12 months. Whether you’ve recently welcomed a new addition, or your family simply needs added space as your children grow, upgrading to a larger home often becomes important for many. Since most individuals do not have a perfect financial life, getting approved for a low interest mortgage is not always an easy task.
If you and your family are looking into buying a bigger home, there are crucial steps to take before applying for mortgage pre-approval. Discover some of my top three tips for getting financially fit before upgrading your home.
Take time to improve your credit score
If you or your spouse has a credit score of 620 or higher, you can get approved for most types of mortgage loans. However, experts state that scores above 700 can ensure the best interest rates. If your credit score could use a bit of a love, there are several things that you can do to quickly improve your standing. One of the best first steps is to remove negative credit report from your credit history. It has been estimated that 1 in 5 people have at least one error on their credit report. Therefore, it is worth your time to look into what appears on your report. Additionally, paying off/down revolving debts on credits cards, and getting current on all payments, can boost your family’s credit score up to 100 points within a few months.
Involve your entire family in saving up a down payment
Although having a down payment of 20% (or more) is ideal, the national down payment average now sits at just 10% of a home’s value. Depending on your family’s financial situation and loan choice, some are not even required to pay a down payment. No matter your situation, it is always best to save as much as possible prior to applying for a home loan. To make the savings process a family effort, involve your children in the home buying process. Invite them to participate in a yard sale with you, or in collecting change for a family down payment change jar. You can also create a savings goal chart that your children can color as you progress toward your goal. Not only will your children find this fun, but they will also learn a valuable lesson about saving for big purchases.
Revise your family budget
Do you currently spend too much on dining out, toys, entertainment, or something else? It’s certainly easy to do! If you said ‘yes,’ or if you are not sure, it is time to revise your family budget. Work with your spouse to list out all of your current expenses, and track how much you’ve spent in all areas. After mapping everything out, assess where you are spending too much. Make a plan to cut back on expenses, and to funnel the extra cash into paying down debt, or into your down payment savings. Even temporarily cutting back on certain spending habits can make a huge difference in your loan balance and/or your approved interest rate.
Upgrading to a larger family home is an exciting time. To make the home buying process as smooth as possible, make the necessary efforts to pay down/off debts, save your down payment as a family, and revise your family budget.