Buying Your First Home? Make Sure You’re Financially Prepared With These Steps
Preparing to buy your first house can be daunting. Credit scores, down payments, and mortgages are all on your mind. Buying your first home can be one of the most exhilarating — and stressful — moments of your life. But armed with the right guide, your @TonyClarkRealtor as your informed guide, you can shop for a house, apply for a mortgage, and close the deal with confidence! We got you! #CallClark
Step 1: Determine how much house you can afford
The first thing to do before buying a home is to make sure it’s the right time to do so. Generally speaking, owning a home pays off financially if you will live in it for at least five years.
Financial experts generally advise that no more than 28 percent of your gross income should go to a mortgage payment. This means if, after expenses and debt, your monthly income is $5,000 per month then your mortgage payment should not be more than $1,400 per month. That said, everyone has different financial goals and lifestyle needs. Some folks choose to under-spend on their house and use the extra money for investments or travel, while others might need more space due to family size. Be sure to factor in your long-term goals so you don’t get stuck with more house (and mortgage) than you need.
Step 2: Prepare your finances for the mortgage process
The last thing you want to do is find your dream home only to discover you’re not financially qualified to buy it. To guarantee you’re financially ready to buy your first home, you’ll need good credit, cash to close, and a verifiable income.
Check your credit fir errors. Pay your bills on time. Know your credit score. Improiving your credit score can take 6 months or longer – Be prepared. Tip: A fast way to improve your score by a few points is to pay down credit card balances and stop using them for two months before you apply for a mortgage. Also, you’ll want to avoid applying for credit (for example, a new credit card or car loan!)
Save cash for a down payment and other expenses
Get your documentation in order. Most recent paystubs, W-2’s, bank statements and, if you have freelance or self-employment income, copies of your last two tax returns.
Step 3: Go shopping for a mortgage
Too often, home buyers leave mortgage shopping to the last minute and watch their dream home go to another bidder who had financing in order. Mortgage pre-approval is a free and non-binding process that presents you as a serious, qualified buyer when buying your first home. Comparing two mortgages can be confusing.
The most common types of mortgages are …..
- Conventional mortgages
- Government-insured mortgages (the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) and the U.S. Department of Veterans Affairs (VA loans).
- Fixed-rate mortgages
- Adjustable-rate mortgages
Step 4: Look closely at the mortgage fees
To make matters worse, mortgage lenders charge fees that aren’t necessarily reflected in the interest rate.
There can be fees for appraising the home, checking your credit, and preparing documentation. In some cases, you may be offered the option to pay “points” at closing that will reduce your interest rate. Points are essentially prepaid interest. This can be a tricky decision, but it can make sense if 1) you can afford to put down the extra cash and 2) expect to carry the mortgage for many, many years. Private mortgage insurance (PMI) is charged when less than 20 percent down, your lender will likely charge you a monthly premium for what’s called private mortgage insurance, or PMI. Private mortgage insurance protects the bank in the event you default on your loan and the value of your home declines significantly.
Buying your first home is exciting, but there’s a lot to think about before you start looking. Start by getting all your finances in order, and using online tools to compare mortgage rates, and manage your credit score. Stronglyly consider hiring the right guide, your @TonyClarkRealtor as your informed guide, you can shop for a house, apply for a mortgage, and close the deal with confidence! We got you! #CallClark
Tony Clark Realtors believes every family should feel confident when buying and selling a home. Since 1976, we are the Owensboro Kentucky market expert.
Tony Clark Realtors | 2934 Frederica Street Owensboro, Kentucky | (270) 683-SOLD