Homeownership is a major milestone many people look forward to in their lives, and few material possessions can compare to the feeling buying your first home brings. However, just about any professional in the real estate business will tell you the buying process can be confusing for first-timers, and many are unsure if they are really ready to take the plunge. These tips will help you decide if you are ready to buy and prepare you for owning your first home.
Review Your Credit – To gain a clear picture of your financial situation, order and review a copy of your credit report. If possible, try to get a copy with entries from all three major credit reporting agencies (you can get a free copy once per year). Look over your credit report to make sure everything is accurate and that there are no discrepancies, and if there are, be sure to report them immediately so that they can be cleared and resolved by the time you start browsing homes. You don’t want any surprises making an untimely entrance into your life, and reviewing your credit can ensure that the information you present to potential lenders is an accurate representation of your credit history.
Minimize Your Debt – When a lender goes over your income, assets and expenses, they will often take your debt-to-income ratio into consideration. Before you even attend your first open house or think about applying for pre-approval, focus your energy into paying off as much debt as possible. Start with your smallest debts and work your way up. The simple act of paying off a few hundred dollars in credit card fees or the remaining balance on your auto loan can make you more attractive to lenders and increase your odds of approval.
Start Saving – The more money you can afford to put down on your house, the less money you have to borrow and the lower your monthly mortgage payments will be. Some lenders do not require a down payment, others may require 10-20%. Cut back on unnecessary expenses and bank as much possible toward a down payment.
Figure Out How Much You Can Afford – Visit potential lenders and have a sit-down to discuss mortgage prequalification. Have the lender run your income, assets and debt to give you an estimate of how much money you can realistically afford to spend on a new home. Mortgage pre-qualification will help you figure out if you are really ready for homeownership and will assist you in the early stages of your buying experience as you look at potential homes.
Consider Your Financing Options – Research different programs you might be eligible for and shop around different lenders. The way you finance your first home can be the difference between living comfortably each month or living paycheck to paycheck. Educate yourself in different interest rates and fees to find the most affordable financing available within your budget.
Get Pre-Approved – Using the figure that you came up with during mortgage pre-qualification, apply for pre-approval through the lender of your choice. Pre-approval is attractive to sellers because it assures them you have the funds to back up your offer.