Buying a house for the first time can be a thrilling and nerve-wracking experience. Although the learning curve is steep, doing a bit of financial homework will make the task a lot easier. With that in mind, here are a few tips that will help make your experience as a first-time homebuyer as painless as possible.
Check Your Credit
Your credit score is the most important factor when it comes to qualifying for a loan, so you’ll need to scrutinize your credit report for mistakes; if you find any errors, you should correct them before applying for a mortgage. Just because you pay your bills on time does not mean that your credit is excellent. Your utilization rate, which is the credit you are using versus the credit available to you, will affect your credit score.
If you have a low rate of utilization, your credit score will be much higher. A first time homebuyer needs to have used less than a third of his or her available credit. If you owe more money than this, you might have to work on your credit first before you qualify for a mortgage.
Evaluate your Liabilities and Assets
If your payments are current and you do not owe too much, you need to assess how you spend your money. For example, do you have enough money left over after paying your monthly expenses? You need to know what is owed and what you are getting.
You need to know how a lender will view your income, which means that you should familiarize yourself with the basics of mortgages. If you don’t earn enough to save for a down payment, you should check whether you qualify for a VA home loan, in which case you can get a mortgage with little to no down payment.
Organize Your Documents
You need to have your taxes and proof of income ready when applying for a mortgage. The lender will ask for two of the latest pay slips, tax returns, and W-2s from the past two years. Lenders want every page of your bank statement — including the blank ones — so you should not throw those away.
Make sure that you look for your documents before approaching a lender to save time.
Qualify Yourself
You need to know how much house you can afford. You can do this by considering the down payment and knowing your debt-to-income ratio. This information will help you to know what you can afford per month and upfront. Your expenses should not take up more than 28% of your gross income. Knowing how much house you can afford will help you to keep your expectations in check.
Figure out the Down Payment
Coming up with a down payment is no easy feat because a mortgage deposit is, well … a big chunk of cash! If you have put away some money in your savings account, then check to see if you have enough to cover 20% of the home’s value — this is because a 20% down payment relieves you of the need for mortgage insurance, which is quite costly.
If you do not have enough money for a down payment, then you should curb your spending habits and cut back on a few luxuries. When applying for a mortgage, the lender will look at your spending habits as well as your deposit.
Once you know how much you can afford, the process of house hunting can begin. Looking for a house is a lot of fun. Just remember, it’s important to not only consider the aesthetics of a home; be sure to look at the neighborhood too.
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If you are not entirely captive to circumstances you are not willing to drastically change, You CAN rearrange your life to, among other libertarian circumstances, build your own house.
As with all real estate enterprises, “location, location, location” is paramount.
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