If you’re hoping to buy or build a home in the near future but don’t have the best credit history or would like to improve your financial standing, worry not. You can use this time prior to buying to clean up your credit and give yourself better prospects when the time comes to apply for a loan. Check out these tips from LakeCrest Builders for preparing your finances


  1. Get Your Free Credit Report

Before you know what you need to do, you have to find out where you stand. Get your free credit report and read through it meticulously. Check first to see if there are any outright errors. If so, you can contact the credit bureau and begin the process of getting it removed from your report.


Next, look at your report through the eyes of a lender. Lenders like to see low credit usage, good payment history, and a reasonable debt-to-income ratio. If your credit usage is above 30%, for example, that indicates too much spending to a lender. Decide what aspects of your credit history need the most shoring up and focus on the most pressing first.


You should also look at the price of real estate in your desired area to see how much you will need to borrow. For instance, the median sale price of a house in Reno, NV is $520,000. If you have $250,000 worth of equity in your current home and $20,000 saved towards your deposit, you will only need to borrow $250,000. You can use that information in addition to your debt-to-income ratio to see if your credit is good enough for what you need.


  1. Reduce Spending and Increase Saving

Redesign your budget to prioritize saving and reduce spending so you can make strategic payments on your debts or save for a bigger down payment. Because the year before you purchase or build a home is so important in the eyes of potential lenders, consider making some temporary changes to your lifestyle to help get extra funds in your bank account. Cutting down on eating out and temporarily canceling subscriptions can give you extra money each month.


If you already have excellent credit and don’t have much debt to worry about paying down, it may benefit you to save as much as possible for a down payment as this can help lower your monthly housing costs. If your credit could use improvement, though, strategically paying off your debts is the wiser move as this decreases your credit usage and can improve your DTI.

Wells Fargo recommends the snowball and avalanche methods of debt reduction. Both are effective but go about paying off debt in different ways. With the snowball method, you start by paying off your smallest debt first, then using the payments that would’ve gone toward it to pay off the next smallest, and so on. Credit Karma explains that with the avalanche method, you instead pay off your highest interest rate debts first. While the avalanche method can save you more in the long run, the quick rewards of the snowball method can make it easier to maintain.


  1. Register as an LLC if You’re a Business Owner

If you’re a business owner looking to purchase a home, there are special considerations to keep in mind. Because you will be investing in such a large personal asset, if you don’t already have your business set up as a limited liability company, now may be the time to do so.


An LLC formation puts a layer of protection between your assets and those of your business so that the two are not conflated while also giving you tax advantages such as pass-through taxation. Check your state’s regulations before filing for one as they differ from state to state. And if you choose to have a formation service do this work for you, look online for the cheapest LLC filing service by BestLLCServices.com to check on the best companies available for the job.


Get Your Home Buying Process Started

Don’t settle for less than your dream home. Whether you’re buying a home or building one, unless you are paying outright, you will need to work with a lender and apply for a mortgage. Get yourself in the best financial position possible by improving your credit, saving, and forming an LLC if you’re a business owner.



Are you tired of finding homes that don’t quite meet your needs? Consider having one built instead. LakeCrest Builders can help get you into the home of your dreams. Contact us today to get your custom home process started!