When you’re ready to buy a home, the biggest obstacle may be in finding the best mortgage options for your situations. Without some knowledge about how home financing works, you may sabotage yourself without even knowing it.

Get Pre-Approved

If you’re new to the homebuying experience, you may not be aware that you can get pre-approved for your loan. Going through this process, before you begin your home search can help you in a couple of ways. First, it gives you a better idea of how much you can afford to pay, so you won’t be looking at properties outside your price range. Second, it prepares you to make an offer as soon as you find something you like. This is important, because you may be in a seller’s market and the home listing won’t last long.

Qualifying for a Loan is Easier

The economic landscape has changed drastically in recent years, partly because millennials are coming to the real estate market with lower credit scores. Since this is a problem facing the majority of homebuyers, lenders have been forced to relax their standards. This means you can now buy a home with a down payment as low as 3% of the sale price, even with some commercial lenders. Also, acceptable debt to income ratios are at 50%, where they were once at a 45% rate on Fannie Mae loans.

Don’t Make Any Big Purchases

Once you decide to buy a home, put a stop to big or unnecessary purchases. While this is true as you try to get pre-approved, you’ll also want to hold fast against spending money throughout the homebuying process. Spending money or applying for new credit cards can significantly alter your credit profile, which means you may find it difficult to qualify for a home loan. Additionally, poor spending habits can indicate a credit risk and, even if you do get pre-approved, you may end up paying a higher interest rate. Experts recommend ceasing spending and credit use at least six months in advance and you may want to read more about how credit ratings can affect how much interest you pay.

Buy the Worst House

Another factor to consider is how much your home will appreciate, while you own it. If you go for the best house on the block, you may actually lose money, because homes only appreciate as much as the surrounding property. Conversely, buying the home with the lowest value in the neighborhood maximizes your potential for home appreciation. Also, fewer homebuyers go for the best and biggest home, so you may experience trouble trying to sell the most valuable property in the neighborhood. Sometimes less is more.

Buying a home can be a complex process, especially when you lack an understanding about how credit affects loan terms. By thinking ahead, you can improve your credit profile and increase the chances that you’ll get approved for a loan with optimal terms. If you’re unsure about what to do to prepare, you can speak with your financial advisor or a loan officer at your bank.