5 Things You Can Do Before You Buy a House When You Need More Cash
Thank you to Natalie Jones from homeownerbliss.info for contributing this blog post!
We all know that buying a home takes money. But, unfortunately, debt and credit issues from the past can creep up on you, stalling this major life decision. Today, Reel Property Solutions offers today’s tips for hopeful homebuyers looking to get ahead of potential financial bumps in the road.
Understand the Buying Process
For the most part, the buying process is pretty straightforward. A lender will check your credit, evaluate your debt, and decide if you are responsible enough to repay a large loan. But, some people have unique credit situations. Independent contractors and business owners are great examples. If you fit into either of these categories, you may not pay yourself a traditional salary and may not have official pay stubs to back up your income claims. This can create many hurdles and bottleneck the buying process.
Form an LLC
If you’re at least 12 months out, consider forming an LLC, which is a business entity that you can pay yourself through so that you are considered employed. An LLC has a number of advantages, including reduced taxes and personal liability. An online formation service can help you get started in minutes; to find the best one, visit LLC services reviewed by BestLLCServices.com.
Get to Know Available Mortgage Products
There are three primary types of mortgage: conventional, FHA, and VA. For most credit-stable buyers, a conventional loan is the best bet. If you can save at least 20% down – look at current housing prices in your area for an idea of what you can afford and how much will need to save – then you won’t have to pay additional insurance on your loan. The MortgageCalculator.org site explains that VA loans, which are only available to veterans, require nothing down and no private mortgage insurance. FHA loans offer better rates for low-credit borrowers that may not be a viable option if you’re planning to buy a condo.
People buying in extremely rural areas may also want to consider a USDA loan, but these are not as common, have income limits, and may require a credit score of at least 680. Something to keep in mind here is that you’ll need to pay off as much debt as possible, no matter which loan type you apply for, to lower your debt-to-income ratio.
Reevaluate Your Budget
Budgeting is hard, there’s no shame in admitting that. However, when you’re trying to buy a home, you have to know where every penny goes. If you’re self-employed, especially, your lender will watch your spending habits like a hawk. Spend some time reevaluating your budget, and cut extraneous expenses. Try to whittle your monthly spending down to nothing but the necessities: shelter, food, transportation, clothing, and internet (and, no, an internet connection is no longer a luxury).
Dispute Incorrect Credit Information
The Federal Trade Commission explains that your credit can affect if and how much money you can borrow. If your credit is not accurate, make sure to dispute it with the reporting credit agency. Remember, you can always get a free copy of your credit report from AnnualCreditReport.com. It can take several months for an inaccuracy to be removed from your report. In the meantime, these mistakes may cost you the home of your dreams. Remember, the real estate market moves quickly, and it’s unlikely that it will slow down within the next year.
Ultimately, if you want to buy a house in today’s market, your best bet is to be prepared. When you are in a cash crunch or have past debt issues, give yourself as much time as possible to get your credit and debt in order, and consider forming an LLC to protect your finances. The above four tips can help, but your mortgage broker can offer more advice pertinent to your situation.
Reel Property Solutions has the integrity to follow up on our promises, and together with our team, we have the expertise to navigate any transaction to ensure you’re fully informed for making the best decision possible. Call 507-358-0638.
Also know that Rochelle from Reel Property Solutions, LLC is also a licensed real estate agent. Check out Rochelle’s website for more information! Or contact rochelle.markov@exprealty.com. There’s also the option to call or text 507-358-0638.
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