Any homebuyer will know that it takes a lot of preparation to buy your first home. From start to finish you’ll have to save money, get out of debt, know what you want and so much more. The process isn’t easy but in the end, it’s completely worth it to say that you own your first home. These 11 tips will help you in situating your finances so you can get the home you deserve.
Pay Off All Debt ASAP
This may seem like an unusual home-buying tip, but this is one of the most important tips. This is because owning your own home can get immensely expensive. It may not seem like it, but it’s far more expensive than renting a place. Unlike rentals, with homes, you have to be responsible for everything. What every mishap that happens such as maintenance, needs to be addressed immediately. These can get pretty expensive too. Other than just your mortgage, you’ll need to be debt-free when getting your first home. Any financial setbacks will set you back and things can go wrong quickly.
Have an Emergency Fund
Once you’re debt-free, you’ll need to begin growing a big emergency fund. This emergency fund will be there for you in case anything goes wrong such as maintenance for the house or even a medical emergency. Create a budget and stick to it, make sure you put enough money in it per month. So whenever bad news comes your way, you’ll be well prepared. You should also avoid putting anything emergency-wise on a credit card, as the interest will come back to bite you.
Begin Focusing on Other Expenses
Once you’re out of debt and you have an emergency fund saved up, you can now begin saving up money for your future home. There are plenty of housing-related expenses that you’ll need to keep in mind right before you even get the chance to shop around for houses. You’ll need to have money saved up for the down payment (usually it’s 3% of the value of the house), closing costs, and move-in expenses too. There can be other expenses that you’ll put into account as well before purchasing a home.
What You Qualify for and What You Can Afford
Just because you may qualify for a nice home doesn’t mean you can afford it. The general rule of thumb is that you need to keep your total housing cost below your gross income, under 30% if you can. You’ll need to keep in mind that you have to pay taxes, food, bills, luxuries, emergencies, and there are so many other things you’ll have to put into consideration too. Don’t try to set yourself up for a house if it means you’ll be struggling to make ends meet. Try to just pick something that you’re able to afford, not just what you qualify for.
Strengthen Your Credit
Your credit score will be determining what you can qualify for, but this will heavily affect the interest rate too. Before speaking to a mortgage broker, you should really focus on getting your credit score as high as it gets. You can get free copies of your credit score and dispute errors if you see any. Try to pay all your bills on time and keep your credit card balance as low as you can (but be sure to use it as this will also affect your score). It may sound odd, but keep your credit cards open because if they get closed, that will also affect your score.
Look into Your Loan Options
Did you know that there are multiple different types of mortgage loans? Your down payment will heavily depend on what type of loan you choose. This can also affect the type of home that you can buy and so much more. Each type of loan has its qualification that you’ll have to meet. So be sure to research thoroughly which loan has the standards that you can meet. Do all of this before applying to anything.
Research Assistance Programs
Did you know that some states and cities offer programs just for first-time homebuyers? This often consists of low-interest mortgage rates as well as down payment assistance, plus closing cost assistance. There is even a tax credit available too through some of these programs. You just need to do some research on what cities and states offer these sorts of programs. Are you a first-time homebuyer in Kansas City? Many cities such as KC offer exciting assistance for these first-time homebuyers.
Get a Preapproved Loan Before House Hunting
Once you’ve saved enough money, built your credit, and tackled your debt, comes the next step. Getting prequalified for a loan can be very helpful for your house buying journey. Be sure to get a preapproval letter before you begin your house searching. These pre-approval letters show sellers that you’re a serious buyer. This is great for a first-time buyer because this can get you ahead in a very competitive market. In order to get this preapproval, your lender will need to verify your financial information, such as proof of income, taxes, debt, etc., and then submit the loan for preliminary underwriting.
Research the Real Estate Agency, and Choose Wisely
One of the best things you can do is speak with other recent home buyers about their experience with the local real estate agents. Also, try and interview a few agencies as well as request some references from them. You’ll really want to make sure you have a good agent that can help by meeting your needs and guide you through the negotiations.
List Your Wants and Needs
It’s best to make a list of what you really want out of your future home. Are you wanting to live in a nice neighborhood? Do you want to live in a condo? Do you want a big backyard? What about an extra room for a home office? Sit down and write a list of qualities that your house must have and another list of what would be nice to have. This alone can help you shop for a home quickly and effectively.
Make the Most of Open Houses
Whenever you get the chance, try to tour in person at people’s homes. You’ll be able to pick up on small details, odors, and get an idea of the size of the home. You should also utilize this time to ask questions about the house such as the plumbing.