Most people dream of becoming a homeowner and consider it a financial investment that pays off over the years. For those who are new to the process of buying a house, it can be difficult to know where to begin. If you’re ready to buy your first home, read on for a few essential steps to take.
Many people make the mistake of shopping around for their first home before they secure the financing with a loan. Sellers won’t take you seriously if you make an offer but haven’t been approved for a home loan yet. You’ll need to apply for a loan through a bank or financial institution and provide all of your information, which includes your debt-to-income ratio, household income, and list of assets.
You’ll need to have at least one year of employment at the same establishment to provide proof that you’ll be able to make your mortgage payments on time after you buy your first home. It’s important to avoid changing jobs or becoming self-employed while your application is pending to reduce the risk of being denied.
Calculate What You Can Afford
One of the main steps of preparing to buy a new home is determining what you can afford before you begin shopping around. Add up your household income and multiply it by two or three. You’ll also need to factor in the cost of property taxes, homeowner’s insurance, HOA fees, utilities, and the cost of repairs or upgrades that are needed in the future. The amount of debt that you’ve accumulated will also influence what you can afford, which includes auto loans, student debt, and credit card debt. According to forbes.com, your mortgage payment should be 25 to 35 percent of your monthly income.
Save a Down Payment to Buy Your First Home
The down payment is needed to secure your loan and will also influence how much money you pay towards your mortgage each month. Evaluate your budget to look for expenses that can be cut out to save more money. Consider cutting the cord on your cable television and limiting non-essential activities or purchases. Preparing more meals at home and using coupons at the grocery store can also allow you to reduce what you spend each month to ensure that you can save more for a down payment.
Conventional mortgages typically require 20 percent down on the house, but if you get an FHA loan, you may only need 3.5 to 10 percent of the selling price of the home. If you’re a veteran, you can take advantage of a VA loan, which has lower interest rates and doesn’t require a down payment when you buy your first home.
Increase Your Credit Score
Your credit score is one of the leading factors that lenders evaluate when determining if they’ll provide you with a loan to buy a house. The credit score determines how well you repay outstanding debts and manage your money. Most lenders require a score of at least 580 to qualify for a mortgage. You can boost your score by making your credit card payments on time and paying off accounts that have high balances. Avoid closing any of your accounts, which can reduce the length of your history as a buyer and can negatively affect your credit score.
Taking the necessary steps to prepare for buying a new home will allow you to have a smooth and successful process. You can have peace of mind knowing that you’re taking the right steps to purchase a house that is within your price range and that you’ll enjoy long-term.
While a home inspection is not required to buy a home, it is an essential step to take so you’re confident about your investment and tp avoid costly and troublesome surprises later on. If you are in Southeast Michigan and are buying your first home, contact American Home Inspection Services today!