Buying goes better with six months of preparation. When you give yourself time to strengthen your credit, organize your documents and talk with a lender before you start shopping, you walk into the process with confidence. You know your budget, sellers take your offers seriously, and you avoid the last-minute scrambles that can delay or derail a closing.
Here is a month-by-month plan to get financially ready to buy a home. It is general guidance to help you prepare. Every situation is different, so talk with a lender and, if needed, a financial professional about your own circumstances.
Why Six Months?
Some steps in getting ready to buy take time to show results. Paying down credit card balances, correcting errors on your credit report and building savings do not happen overnight. Lenders also look at patterns, such as steady income and consistent account balances, over a period of months. Starting six months out gives you room to make improvements and reduces the chance of surprises when you apply for a mortgage.
If you are planning to buy in the North Georgia mountains this fall or next spring, now is a good time to start.
Months 6 to 4: Build a Strong Credit Foundation
Check credit
Start by reviewing your credit reports from the three major credit bureaus. You are entitled to free reports, and checking your own credit does not lower your score. Look for:
- Accounts you do not recognize
- Late payments that were actually on time
- Balances that are reported incorrectly
- Old debts that should have been removed
If you find errors, dispute them with the credit bureau. Corrections can take time, which is one reason to start early.
Pay down cards
Credit card balances affect your credit utilization, the share of your available credit that you are using. Lower utilization generally helps your score. Paying down balances can also lower your monthly debt payments, which affects how much a lender will approve you to borrow. Focus on high balances first, and keep making every payment on time.
Stop opening new accounts
Each new credit application can result in a hard inquiry on your report, and new accounts can lower the average age of your credit. More importantly, new debt, such as a car loan or furniture financing, can change your debt-to-income ratio and reduce what you can borrow. Hold off on new credit until after you close on your home.
Start building savings
While you work on credit, set up automatic transfers to a savings account for your down payment, closing costs and reserves. Closing costs in Georgia typically run two to four percent of the purchase price for buyers, so plan for those in addition to your down payment.
Months 3 to 2: Organize and Talk to a Lender
Gather tax returns, pay stubs and bank statements
Lenders need to verify your income and assets. Start pulling together the documents they commonly request:
- Federal tax returns, often for the last two years
- Recent pay stubs
- W-2s or 1099s
- Bank and investment account statements, usually for the last couple of months
- Documentation of other income, such as retirement, Social Security or rental income
- Business tax returns and profit-and-loss statements if you are self-employed
Keep everything in one place, digital or paper, so you can respond quickly when a lender asks.
Talk to a lender
Meet with one or more lenders to discuss loan programs, down payment options, interest rates and estimated monthly payments. Ask about any special considerations for mountain properties, such as homes with private wells and septic, log construction or acreage, since some loan programs have specific requirements. Compare the information you receive so you can choose the lender that best fits your needs.
Avoid large unexplained deposits
Lenders review your bank statements and may ask you to document large deposits. If family members plan to help with your down payment, ask your lender how to document a gift properly.
Month 1: Get Pre-Approved and Start Touring
Pre-approval letter in hand
A pre-approval means a lender has reviewed your credit, income and assets and is prepared to lend up to a certain amount, subject to final conditions. A pre-approval letter shows sellers you are a serious, qualified buyer. In competitive situations, it can make the difference between an accepted offer and one that gets passed over.
Start touring seriously
With pre-approval in hand, you are ready to tour homes with confidence. You know your budget, you can act quickly when you find the right property, and you can write a strong offer. Work with your agent to focus on homes that match your priorities and price range.
Keep It Steady Until Closing
Your financial preparation does not end when your offer is accepted. Lenders often recheck credit and employment before closing. Until you have the keys:
- Do not open new credit cards or loans.
- Do not make large purchases on credit, such as furniture or a vehicle.
- Do not change jobs without talking to your lender first.
- Keep paying every bill on time.
- Avoid moving large sums of money between accounts without documentation.
Common Mistakes to Avoid
- Shopping for homes before talking to a lender
- Assuming a pre-qualification is the same as a pre-approval
- Draining all savings for the down payment and leaving nothing for closing costs, moving and repairs
- Financing new furniture or a car before closing
What to do this week
- Pull your credit reports and review them for errors.
- List your credit card balances and make a payoff plan.
- Set up an automatic savings transfer.
- Create a folder for tax returns, pay stubs and bank statements.
- Talk with Sherry about your timeline and the areas you are considering, so you are ready to move when the right home appears.
