Buying your first home is one of the biggest financial steps that you will ever make and it is important to take this decision seriously. You need to take the time prepare yourself in every aspect in order to make your home a blessing, and not a negative experience. Here are the basic steps that you should follow when it is time to buy your first home.
1.) Get your finances in check
Banks and lenders review your income, debt, and credit utilization. Try to keep your debt to income ratio low and avoid new credit applications, several credit checks in short periods of time can significantly lower your credit score.
2.) Save save save
If you aren’t already, try to set aside 10-20% of every paycheck. Not only will this help you save for a larger down payment, but it could also help you cover other large expenses such as appraisal costs, home inspections, and closing costs. This is also a good habit to keep after buying a home in case of those unexpected home repairs.
3.) Loan shop, be honest about what you can afford
Getting a home mortgage is challenging, especially for first-time home buyers.Take the time to shop for a loan. You should contact at least three people before you decide which loan to take. A mortgage broker will look at several different loan companies to find you the best rates. Also, your small local bank or credit union may have options that will save you money as well. A good rule of thumb is to keep your mortgage, taxes, and insurance between 25 and 30 percent of your income.
4.) Get pre-approved for a mortgage
Getting preapproved for a home loan gives you perspective on how much home you can afford and helps narrows down your search, this is why you need to get pre-approved before you start shopping for a home. If you spend too much on your mortgage you may not be able to meet your daily obligations let alone save for retirement. If you are carrying debt (credit card or student loan debt), you should keep your house payments on the lower end of that amount. Just a few things you will need in this process include:
- Pay stubs
- Last two years tax returns
- Last two years W-2’s
- Most recent bank statements
- Credit report
- Statement of all savings accounts/investments
You want to build wealth, not debt with your home purchase. If you make the wrong choice, you may end up hurting yourself financially.. A large down payment can help you avoid future debt and makes it easier to sell if you need to move.
5.) Find a good realtor
Once you have determined how much you can really spend and are pre-approved you should begin to look for a realtor. Your realtor should listen to your wants and needs carefully, they should also be able to make recommendations or explain the market to you to help you find a home that suits your needs and most importantly, that you can afford. This person is going to be vital to making the home buying process a breeze so don’t be ashamed of interviewing a few until you find the one to make your home buying dreams come true.
At Red Door we know a few good realtors. Stop in or give us a call today
You should be prepared to pay for all of your closing costs out of pocket. This will save you money over time. If you are finding it difficult to save up for closing costs, you may not be ready to purchase a home. Closing costs can cost as much as 2-7% of the home, and many times they catch people off guard.
We wish you the best of luck on your home search and hope that you choose Red Door to help you along the way.