Preparing to buy a home.

Big purchase on the horizon?

Set yourself up for success before you apply for a mortgage loan.

Purchasing your dream home takes planning, and it all starts with getting your financial situation in order.

Before buying a home, you need to first figure out your budget and how to start saving for a down payment. You should also consider building your credit. Having good credit could help you get favorable interest rates.

Whether you’re thinking of making a big purchase in the next few months or years, it’s never too early or too late to get your credit health in order. Keep reading to learn more about how to set yourself up for success.

Preparing to buy a home

Planning starts well before you make an offer on a house. As you prepare for your purchase, you need to think about:

How much to save for a down payment
What you can afford
Whether you’re in a position to take on a significant new debt. (Use our credit score simulator, opens dialog
to see how your decisions could impact your credit score)

You should also review your credit and fix any errors your find. Remember that a lender will check your credit score and report when you apply for a mortgage loan. The lender will use this information to determine the terms of the loan and whether you get the loan.

Figuring out where you stand

When a mortgage lender reviews your credit, they will look at whether you’ve:

Made payments on time to your credit cards and other loans
Used too much of your available credit
Applied recently for new credit cards or loans
Had any bankruptcies, debts in collections, tax liens, or other financial judgments against you

Checking your credit report and score early in the process will help you better understand your financial situation and how a lender is likely to view your application. Access your Experian® credit report for more information.

You can get a copy of your credit report from each of the three major credit bureaus, at no cost, every 12 months by visiting www.annualcreditreport.com. You can also request additional copies of your reports for a fee.

Make sure your personal information and credit history are accurate when you check your credit report. Look out for any high account balances and past due debts. You should also try to fix any errors you find as soon as possible.

Reviewing your report and score before meeting with your lender or submitting an application should help avoid any surprises. Keep in mind that you have many different credit scores, so when a lender receives your score, it may be slightly different from what you see when you check it.

Building and protecting your credit health

After you’ve reviewed your credit report, take the time to plan how you’re going to improve your credit health. There are plenty of dos and don’ts to consider no matter where you are in your journey toward making a big purchase.

Pay all your bills on time
Pay down high balances
Resolve delinquent accounts
Dispute errors on your credit report with each credit bureau
Keep monitoring your credit report and score

Don’t

Miss payments
Open new credit cards or apply for new loans
Close your credit cards after you pay them off
Ignore errors you find on your credit report

These steps can help you improve your credit, so you don’t have any red flags when you try to borrow.

Improving your credit matters

Your credit health is important when you’re trying to get a mortgage loan. If your credit is good, you’re more likely to get a favorable interest rate. The lower the interest rate, the less you’ll pay over the life of the loan.

Remember that the total cost of your loan may determine what house you can afford. For example, if you only qualify for a high interest rate that falls outside your budget, you might need to choose a smaller place, or delay buying altogether.

The sooner you start preparing for a large purchase, the more time you’ll have to improve your credit. But you have time to make changes that will impact your credit, even if you want to apply for a mortgage loan in the next few months.

Key takeaways

Financially preparing to buy a home can include saving for a down payment, thinking about your budget, and improving your credit.
Know your credit score before you meet with a lender or submit an application, but remember that the score the lender uses could be different from the one you see.
When you apply for a big purchase, a lender will look at your credit report and score to see how much you’ve borrowed and how well you’ve done repaying your loans.
Pay down large debts, dispute credit report errors, and address any overdue accounts before you apply for a mortgage loan.
Pay your bills on time and monitor your credit report and score as you get closer to making your big purchase.
Your credit score might impact whether you get approved for a mortgage loan and could determine what house you can afford.