If you have purchasing a home on your to-do list in the next five years or so, the time to start getting ready is now. You might wonder why you should be so concerned with something that is not going to happen for several years, but proper planning will help you reach your goals. There is no surefire way to tell what credit restrictions and mortgage guidelines will be five years from now, but to err on the side of caution, here are five things that you can start doing now to ensure that you get into the home of your dreams in the future.
Build up your Credit
You will need a credit history. If you are a student or at home living with mom and dad, this could be difficult – but not impossible. It is especially important if you are not going to have a rental history to provide a lender with when you apply for a loan. Start applying for credit cards responsibly. If you do not have any credit cards, now is the time to apply for one, even if it is a secured card. Once you have a credit card, use it, but sparingly. You need to build up your history by charging purchases and paying them off as soon as possible. The activity on your credit will help your credit score to increase. Just be careful not to charge so much that you cannot afford to pay it off. Other ways to build up your credit including taking out a car loan or student loans, just be mindful of timely payments and your credit history will build on a positive note.
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Start Saving
It is never too early to start saving for a home. Even if you can only put a small percentage of your income away at a time, every little bit counts. Many first-time homebuyers rely on gift money from relatives to get into their first home, but if you can do without that, it will put you in a better position with various lenders. The larger that your initial down payment is on your home, the more programs that you will be eligible for and the lower the rates will be on your mortgage.
Keep Careful Records
When you apply for a mortgage, you will need records of just about any financial transaction that occurs in your life. This means that you will need to keep your tax returns, W-2s and paystubs as proof of your income. You might need bank statements and deposit slips to show proof of various deposits and you might even need cancelled checks or statements to prove that your debts are paid off as well as paid on time. Start a file now with all of the important financial records that could be needed for your mortgage application to cut down the stress of rifling through papers when the time comes to apply.
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Keep a Steady Income
If you are a student or a recent graduate, it can be difficult to keep your income steady, but it is important to try your best. Lenders today want to see at least two years of steady income. This means not bouncing from job to job or leaving large gaps in your employment history where you had no income at all. The more regular your income is during the years leading up to your mortgage application, the more favorable lenders will look at your file. For some students this might mean putting off purchasing a home until their income has enough time to show a consistent history, but the benefits of waiting pay off in the form of more favorable loan terms and rates in the end.
It is possible for first-time home-buyers to get a loan on their own as long as there is plenty of preparation in the years leading up to the purchase. It is not possible to wake up one day and decide that you are going to apply for a mortgage and expect an approval. Years of proper planning, record keeping and saving are necessary in order to ensure a positive outcome.
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