Gearing up to buy your first home can be one of the most exciting yet stressful experience you’ll have to go through. On one hand, you’re full of enthusiasm and passion at the idea of owning your very first home; on the other hand, you are daunted by the long and tiresome home buying process. And more often than not, it gets overwhelming to the point of not knowing where to begin your journey.
Here are some factors to take into account BEFORE buying your new home:
Save for a down payment, and other expenses. It’s never too early to start saving. This is something we’ve learned from our parents early on in life. Commonly, a 20% down payment is normal for most conventional loans; however, that can downsize to as low as 3.5% if you are able to obtain assistance from establishments such as the Federal Housing Administration (FHA) as a first-time home buyer.
You also have to consider that a smaller down payment can mean higher monthly costs due to mortgage insurance. On a different note, expected and unexpected expenses can come up throughout the transaction such as home repairs and closing. In this situation, overestimating the amount to be saved can go a long way.
Know how much you can afford. There’s nothing more heart-wrenching than finding out you can’t afford that home you spent days glorifying. Set up an appointment to meet with a lender to discuss your finances. A lender can help determine how big of a loan you can borrow after factoring in your income, assets, and debts into the equation. With this, you are able to assess your financial capability, and act accordingly.
Many would agree that keeping the total housing payment under 30% of your monthly income is the ideal rule. Going over this margin can potentially make it difficult for you to add to your savings or address other expenses. What’s the point of buying your dream house if you can’t even afford to live in it?
Improve your credit scores, and prepare financial documents. Chronologically, straightening out your credit reports and credit scores should be placed on the top of the list. It will take a couple of months, maybe a year, to improve your credit standing or correct misinformation so work on it as early as possible. Paying your bills on time, settlement of previous balances, and avoiding major purchases are just some of the practices you can partake in to advance your stature.
Besides checking on credit scores, it is best to have the necessary documents in order. These can include W2 Statements, Federal Tax Returns, Bank Statements, Proof of Income, and Proof of Investment Income. By presenting the mentioned documents, your lender will be able to confirm the pre-approval letter you need as validation of your financial capacity to purchase a home.
Compare mortgage rates. Many home buyers make the mistake of going for the first mortgage they encounter thinking that there will little differences among them. More than this, they tend to put off getting the mortgage after deciding on a purchase. This leads to disappointed buyers whom have been passed over by sellers who opted to go for those with the needed finances already approved.
Finding the mortgage that best suits you can take some time so browse ahead of time. You can start with talking with your banks and credit unions since they might offer good rates to long-time clients. Next, try getting in touch with different lending institutions. They usually have better customer service as compared to the traditional banks. Finally, you can search online, choose from several mortgage brokers available, and compare their rates.
And if all else fails, you can ask your realtor or family and friends for mortgage recommendations that worked for them in the past.
Finding the right home for you. You browse Zillow and other similar platforms, set the filters, and choose the house you like the most that’s within the allotted budget. Sounds easy enough, right? Not at all! There are A LOT of other things to consider in finding your dream home. First, ask yourself: “Which neighborhoods do I want to consider?” or “Should I go for a single-family home or a condominium unit?”. By doing so, you are gradually taking note of the factors most important to you.
From there, make a list of the features you’d like to have such as the number of beds and baths, granite countertops, garage spaces, and swimming pools. Soon enough you will come to realize that you have to decide on what your deal breakers are, and which parts are you willing to compromise.
Lastly, narrow down your options, and attend open houses for these choices. An open house is a great way to get to know the neighborhood, inspect the actual home, and be up to date with other crucial information that you might have overlooked.