First-time homebuyers often end up confused by the process of actually buying a home. They also feel overwhelmed by complexities, both perceived and real. If you can relate to this, don’t fret! Here are some important things to know when buying a house for the first time.
Before You Buy A House For The First Time: Get A Pre-Approval
When you get pre-approved for a mortgage, you’re approved for a certain amount of a loan before you even go to the bank to try to get the money. A pre-approval letter from the lender shows you have what it takes to pay for the home, and it may help you stand out from other buyers by showing you’re a serious buyer and putting your offer over the top.
Before You Buy A House For the First Time: Make Sure You Know Your Credit Report
When applying for a mortgage, you’re evaluated on more than just your credit score. Your credit report will show lenders how you’ve paid your bills in the past and your overall financial health. The credit score in particular will play a key role. It predicts how likely you are to pay back a loan on time, such as a mortgage. Using information from your credit report, a scoring model creates your score.
Before You Buy A House For the First Time: Save For A Down Payment
The typical American homebuyer saves 20% cash for a down payment in just six years. So the earlier you can start saving up for a down payment, the better. Open a savings account that’s dedicated to homebuying; there are apps that can help the process get automated.
Do a full-on look into your budget, going as deeply as possible. There are likely areas that you can definitely cut down on; gourmet coffee, for example, or weekly pizzas. Instead, place those funds into a brokerage account or one that can help high-yield savings along.
Before You Buy A House For the First Time: Set A Firm Budget
Take a long, hard look at your finances. Include debts and your monthly income. That way, you can be honest with yourself about how much you can afford in terms of a house. Take note of these recommended ground rules and ask yourself three questions:
Are you debt-free? If so, you can look into homes that can go all the way up to five times the total income of your household.
Are you spending less than 20% of your income for debt to be paid down? Look into buying homes that are, at most, four times the total income.
Are you spending more than 20% of your monthly income on debt to be paid down? Shop for homes that are only up to three times your total income.
Conclusion
Buying a home for the first time can be overwhelming for many. In truth, the process isn’t as complicated as it seems. It’s particularly important to set a firm budget, get a pre-approval and save for a downpayment.
