Most kids get an annual check up. Many adults also have a physical every year or two. But how often have you done a check-up on your finances? If you are hoping to buy your first home sometime in the near future, a financial check-up is a good idea. Getting your first mortgage means a lender is going to dig pretty deep into your financial situation. The process can be a lot smoother if you are prepared and know what to expect. Here are a few tips:
Be Honest (with yourself)
Know your credit score. If you have a Discover® Card, it’s on every monthly statement. If not request a free credit report from any of the three credit agencies. If your FICO score is below 600, you probably should focus on paying down some of your debt and repairing your credit history.
Know your assets. Your assets include your income and the value of any property you own including cars, artwork, jewelry, musical instruments, boats, bikes, other real estate, retirement/pension, etc.
Understand your debt. What you owe includes your monthly expenses, as well as the balance on any other loans you have, including car loans, student loans, credit card balances (all of them). It also includes any other legal obligation like spousal or child support and other payment plans (ex: rent-to-own furniture/electronics, medical procedures, memberships).
Start keeping track of your key personal and financial documents now, in a folder (paper or on your computer). Make sure your account logins are up to date so you can access updated documents quickly and easily, including:
- Bank/Investment account statements
- Personal Tax Returns (including W2s)
- Legal documents (marriage license, immigration status, divorce decree)
Request a copy of your credit report and check it carefully to ensure it is accurate. It can take weeks or even months to have a correction made. A dispute on your credit report can delay a mortage application.
Avoid big purchases and taking on more debt. Plan for the new car, new furniture or cruise vacation AFTER you have settled into your new home and adjusted to your obligations as a homeowner.
If you have, or plan to, change your name (ex: marriage/divorce) try to complete that process at least 3-6 months before you start house-hunting. Check that all of your identification (photo ID, social security number) is updated and that your banking and credit accounts reflect your new name.
Taking stock of your financial information, ensuring it is accurate and keeping it consistent in the months leading up to your home search will help you understand how much you can save for a down payment, and determine how much home you can buy and maintain.
Having your documents organized and updated will make the mortgage application process go smoothly which will in turn ensure that when you find your first home, you are qualified to make an offer and get the financing you need.