Buying your first home can be one of the most thrilling and most nerve-wracking experiences of your life. You don’t know what you need, what to expect, or sometimes even what the process is. But home ownership is a smart long term investment, but you don’t want to dive in headfirst without knowing what you’re doing. It may seem complicated at first, but all you need to do is a little bit of homework and you’ll be caught up in no time. So here is some good advice for first time home buyers to follow.
Check your credit:
Your credit score is one of the most important factors when it comes to qualifying for a mortgage. So, make sure your credit report is up to date and free of mistakes before you try to apply for a loan. If you believe your credit isn’t up to par, take at least six months to repair it before applying for a loan.
Evaluate your assets and liabilities:
Don’t fall into the pitfall of just thinking that a good credit score is enough to secure a loan. How you spend your money is important too. Not just that you pay all your bills on time, but how much do you have left over each month. As a first-time home buyer, you need to know about your monthly cash flow and where the money goes each month.
Have your documents organized:
When applying for a mortgage, you need to have documentation of your income and taxes. Typically, lenders will want your two most recent pay stubs, the previous years’ W-2’s, tax returns, and the past 2 months of bank statements.
Know what you can afford:
Make sure you know how much home you can afford by preparing your finances before you go house hunting. That way you won’t be disappointed when you find the home of your dreams, only to find that’s it’s out of your price range. So in order to do that you need to:
Ideally, you’ll know how much home you afford before the mortgage lender tells you how much you qualify for. By calculating your debt-to-income ratio and factoring a down payment you can afford, both up front and monthly. There’s no fixed debt-to-income ratio for qualification, but the old standard is 28 percent of your gross monthly income be devoted to housing costs.
Figure out your down payment:
There are assistance loans that can cover up to $10,000 which are interest free and payment free and forgivable after 5 years. Though they’re technically a loan, it’s more like a grant. There are even some programs that provide up to $40,000 interest free.
And Voila! Those are essentially all the steps you need for buying your first home: Check your credit, evaluate your assets, have your documents organized, know how much home you can afford, qualify yourself, and figure out your down payment. Hope this article was useful, if it was, don’t be shy, pass it along to other who you know are looking into home buying.