Once you have found your dream, new home construction, and have put in an offer, the last thing you want is the disappointment of having the lender deny your loan application. Buying a new construction home is not only a huge investment — it’s also a complex financial transaction. You can streamline the process and reduce the risk of unwanted surprises by having your finances in order beforehand. Here is a quick guide from Lowder New Homes that will help you prepare your finances for buying an Alabama home.
1. Check Your Credit Report
Your credit score plays a crucial role in qualifying you for a mortgage loan. If there are inaccuracies on your credit report or items that shouldn’t be there, these items can drop your score and lessen your chances of qualifying for a good rate—or indeed, qualifying at all. You are legally entitled to a free copy of your credit score once a year, and some fee-based credit monitoring services like Privacy Guard and Identity Guard will let you pull reports more frequently. Obtain copies of your report from all three reporting agencies (Experian, Trans-Union, and Equifax) and if you see any errors, reach out to the agencies to dispute them. (If they can’t verify the information, they are required to remove the erroneous entries.)
2. Pay Down Excess Debt
Having excess debt will lower your credit score and reduce your chances for loan approval. This is true even if you are current on all your bills, since lenders also look at your debt-to-income ratio to make sure you can afford your mortgage payments. If you’re carrying large amounts of credit card or installment loan debt, you might want to take a little time to pay down those balances.
3. Put Money Away
Conventional loans typically require a 20 percent down payment for a house, although many loan products are available that allow you to put down considerably less—especially if you are a first-time buyer. That said, it still looks good to the lenders if you can show you have some money in savings.
4. Get Prequalified
Once you’ve got the above steps in order, it’s best to get prequalified by the lender so you and the builder know how much home you can afford. The lender will likely ask you for 1-2 years of tax returns, as well as bank statements and recent pay stubs to prove your income. You can accelerate the qualifying process by getting this paperwork together in advance.
5. Avoid Major Changes in Your Finances
Once you’ve made an offer on a home and the lender begins processing your loan, it’s important not to make any significant changes in your financial status while the loan is being processed. Try to avoid switching jobs or making major purchases that could affect your credit score, as these can complicate the final approval process.
When you’re ready to buy your Alabama home, Lowder New Homes builds new construction homes in many of Montgomery’s finest neighborhoods, as well as in outlying areas like Auburn and Prattville. If you don’t have a lender yet, we also work with many preferred lenders who can help you qualify for your dream home. For more information, give us a call at 334-270-6789.