When it comes to financial and life goals, a large number of people have buying their first home high on their list. Being able to purchase a home depends heavily on your finances being in good standing and below are 6 signs that you are ready to go off house hunting!
Are you ready to buy your first home?
1. Know how much you can afford
What house you can afford is something you should base on your income after taxes. Are you comfortably able to afford the estimated monthly mortgage payments without feeling strained or impacting your other financial goals?
It's a good idea to keep your mortgage payments to 30% of your income and certainly no more than 50%. Also be sure to factor in insurance, taxes and association fees on top of your monthly mortgage payment.
2. You have 20% of the house cost saved for a down payment
As criteria for giving you a low-interest rate, many lenders will not loan you more than 80% of the price of the house. Can't make a 20% down payment? Expect to pay more in interest. Open up a bank account specific to saving for your new home, calculate how much money you need and then build your savings into your budget so that every month you have a plan to save towards your down payment. This will also help you figure out long it will take you to save the money.
3. You know what your credit score is
Lenders will want to ensure you are not a liability and will look to your credit report and credit history to make this determination. Check your report to be aware of your credit score and also for any errors that might exist. Statistics show 1 in 3 credit reports have errors on them so do your due diligence. Work on improving your credit score if necessary to ensure you get the best interest rate - lower is better.
"Being able to purchase a home depends heavily on your finances being in good standing."
4. You have all your financial documentation in order
Prepare your financial records because your lender is going to want to see them in order to approve you for a mortgage. From your W2's, tax returns, bank statements, and student loan to other loan statements, credit card statements etc (basically all your assets and liabilities), have this documentation handy and current to provide to your lenders when you start applying for a mortgage.
5. You have been pre-approved for a mortgage
Be sure to shop around for a mortgage and determine what type of mortgage works best for you e.g. Fixed (A mortgage that carries the same interest rate throughout) or adjustable rate (A mortgage that has a variable interest rate after a certain amount of time has passed).
Inquire about any associated mortgage fees and mortgage insurance and obtain a pre-approval letter to show sellers (and your real estate agent) you are a serious and qualified buyer when you officially start house hunting.
6. You are prepared for other associated costs
Be prepared to pay for your home inspection, closing costs and moving costs. These costs will be separate from your down payment. Plan to factor these costs into your budget as you save towards buying your new home.
Do you have these 6 things in order? If your answer is yes then happy house hunting. If you still have work to do, use these 6 items as a guideline to get ready to purchase your first home! Are you thinking about buying your first home? Share how far along you are in the comments!