Searching for and securing your first home purchase can be one of the most exciting, yet stressful, things you do. The days may be filled with scrolling through homes online, chatting with friends about your wish list, and trying to get all things settled in preparation for the move. Before you start getting the ball rolling, it’s important to be sure you know how to prepare yourself—and the documentation—for your home purchase to get home loans so that you can be empowered to close the deal with confidence.
The Right Time to Buy a Home
We’re talking about reviewing credit scores, seeing what you can do for a down payment, and shopping for a mortgage. It’s also a matter of knowing a bit about the housing market and making sure it’s the right time to purchase a home. Confirming it’s the right time to buy a home is one part of your personal finances and one part researching the market. What does your credit score look like? How much have you saved for the down payment? How much have you put aside for all the closing costs? What’s the housing market doing?
Another component to consider is what your intentions are with regard to buying a home. How do you view the process? Is this home purchase going to be an investment or are you aiming to create a home—a place to make your own? While home investments can be a good thing, flipping houses is more of a short-term, high-risk activity. If you’re looking to create a home, you’ll be better set up in the long-term. A good rule of thumb is that it makes sense to buy a home if you’re planning to live in it for at least five years.
Reviewing Your Personal Finances—And Your Credit Report
The best way to make the most of the home-buying process is to only buy what you can afford. Aim to allocate 30 percent (or less!) of your gross monthly income for mortgage payments. Anything more, and you’re risking being “house poor.” Being house poor means that, while you may have a beautiful home, you struggle to save money or cover other monthly payments, like utilities or other financial obligations.
It’s crucial to prepare your finances for the mortgage process. You’ll need to have good credit, cash to close the purchase, and a verifiable income.
Check Your Credit
Be aware of what’s on your credit report. It’s also important to check for errors and things that can be done to improve it over a few months’ time. It’s also important to weigh your debt-to-income ratio. It will be taken into consideration when you apply for a mortgage.
Some Things You Can Start Doing Today to Improve Your Approval Chances
● Pay down credit cards and try to minimize their usage about two months before applying for a mortgage.
● Avoid applying for any new credit cards or other forms of loans until you’ve closed on the new home.
● When buying a property with a spouse or co-owner, the lender will check both credit scores and use the better score.
Remember that it can take at least six months to improve your credit score, so plan ahead.
● Save cash! This is to both contribute to the down payment and to cover the closing costs. A typical down payment can be between 3.5 and 20 percent of the purchase price of the home. Focusing on saving funds can be one of the most crucial parts of the home purchase process. Although it may be tempting to invest money in the stock market, it can be too volatile for someone who’s seriously interested in purchasing their first home and therefore not recommended.
Get All Documents in Order
Collect all the important documents that you’ll need to demonstrate your capacity for buying a home. Get your pay stubs, W-2s, account statements, and if you plan to include any freelance or self-employment money, you’ll need copies of tax returns for the last two years.
Go Shopping … For a Mortgage
Since this is your first home, you may not know the process of mortgage lending that goes along with all the other aspects of preparation, but don’t put this off until the last minute. Get financing so that you can be confident you’re able to move into your dream home. Pre-approval is free, non-binding, and demonstrates that you’re a serious and qualified buyer.
Researching the different mortgage types and payment options will help ease the process as you continue with your search. Some mortgages will have fixed rates, while others offer adjustable rates. There are other terms that you may hear, including conventional, jumbo, or government-insured mortgages. Talk with a lender about all the information you need to know about rates, fees, and insurances that are offered. For example, private mortgage insurance (PMI) provides protection for the lender should loans go unpaid or the home lose its value.
Other Factors to Consider
Additional things that you’ll need to do as you move forward with the process of your first home purchase include the following:
● Find a real estate agent
● Make a wish list and one for non-negotiable things in your new home
● Visit open houses for the in-person experience that browsing homes online can’t provide
● Check out the neighborhood both online and in-person
Don’t find yourself underwater. By being on top of the process, you can find, secure, and afford your first home purchase. You certainly aren’t alone in the process and you can find insights, answers, and help at your local Rivermark Community Credit Union branch. We have the expertise to make sure that you have all bases covered and are ready for all elements of the home buying process.