How to arrange the finances before applying for a mortgage

How to prepare your credit score and savings to start the home buying process:
Buying a home is a huge financial achievement, so you need to learn to navigate the process, especially when it comes to preparing your finances.
Below are some steps you can take to make sure you are as prepared as possible for the home buying process.
Make sure your credit score and credit report are in good standing.
Your credit score is one of the most important factors related to your financial health because lenders use it—as well as your credit report—to determine the interest rates you'll qualify for when applying for any line of credit or loan.
Interest rates can make borrowing money even more expensive. The higher the interest rate, the more expensive it will be to take out the same loan or line of credit. The same idea is true for mortgages.
Keep in mind that some mortgage lenders do cater to borrowers with lower credit scores. When applying for a new line of credit or a loan with a lower credit score, you'll likely end up getting a higher interest rate because the lender will see you as more of a risk.
Conversely, a higher credit score usually results in a lower interest rate, making it more affordable to borrow money, so it's in your best interest to work on improving your credit score before applying for a mortgage. Continuing to pay your bills on time is the most important thing you can do to help raise your credit score.
As for your credit report, check it for inaccuracies that could lower your credit score and increase your debt-to-income ratio and make sure everything looks right. Lenders will want to make sure that your total debt is not significantly more than you can afford to manage before they will give you a mortgage. Credit monitoring products like Experian (free) and IdentityForce® (paid) can help you monitor your credit report for inaccuracies, potential fraud and identity theft.
Pay off any existing debt.
Your debt-to-income ratio will definitely be looked at when you apply for a home loan, as lenders use this to determine whether or not you can actually afford to purchase a home. A general rule of thumb is that your debt-to-income ratio cannot be more than 43% to qualify for a home purchase - and the lower this ratio, the better.
One of the main ways to lower your debt-to-income ratio is to pay off any existing debt, including any student loan debt, credit card debt, personal loans or other lines of credit you may have taken out.
The debt snowball method is one popular strategy for paying off debt faster, and involves eliminating the smallest debt balance first while paying only the minimum on all your other debts.
Smaller balances disappear and help keep you motivated, allowing you to work your way up to the largest amounts until you're completely debt free.
Another strategy, the debt avalanche method, involves eliminating your highest interest debt first while making minimum payments on the others and working down to the debt with the lowest interest. This method will actually help you save the most money in interest expenses.
Make sure you have emergency savings
Unexpected expenses pop up as soon as you close on your home - the boiler needs to be replaced, the roof suddenly starts leaking or the floor starts to look like it has seen better days.
That's why simply saving enough money to cover your down payment and closing costs just doesn't cut it when you're buying a home. It is important to be prepared to cover any unexpected expenses as soon as possible. Having an emergency fund – a supply of cash that you can access in the event of a serious situation – can help offset these surprise costs.
Emergency savings can also help you continue to make your mortgage payments in the event that you are laid off after purchasing your home.
It's a good idea to keep your emergency fund in a relatively accessible account, such as a Marcus Online Savings Account by Goldman Sachs or an Ally Online Savings Account. With high-yield savings accounts, you'll be paid interest on a monthly basis just to keep a balance, which will help grow your emergency fund a little faster.
Experts generally recommend that you have an emergency fund consisting of three to six months' worth of living expenses, although the amount you need to save really depends on your personal situation and how much your monthly expenses typically are.
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