The home buying process can be very intimidating, especially when it is your first time in the business. Most often, people rush into home ownership as they think the community will see it as a sign of adulthood and financial responsibility. They fail to realize the commitment and responsibilities that come along owning a home. They fail to realize that home ownership is not a guaranteed good investment. Believe it or not, there are people already in the business yet their finances are not the best.
Buying your first home means being financially ready to carry on mortgage payments as it is one of the greatest worries of every homeowner who’s not ready to offer full cash payment for their home. I’ll provide a few tips to help you decide on what you should do before buying a home.
- Know and Improve Your Credit Score: Your credit score is one of the greatest factors that will be used to determine your loan terms. As a first-time homebuyer, you need to understand that a high credit score will help you back the best mortgage deals. A poor or average credit score will highly impact your chances of being approved for a mortgage as lenders will consider you as an unreliable investment option. There are some online services that provide the option to check your credit score for free. Check and be sure everything is perfect so you don’t get punished for old, paid or settled debts. If possible, stop applying for new credit a year before you apply for a mortgage. This will help improve your credit score.
- Study your Mortgage and Down Payment Options: As a potential homeowner, saving for a down payment should be your top priority. Most people will put 20% down but you can always find lenders taking much less than that and some first-time homebuyer programs would allow you to go down as little as 3%. You should understand that putting down less than 20% will cost more and will require private mortgage insurance. A small down payment can as well be heavy on its owner.
You can always find different mortgage options out there. Each comes with different combinations of pros and cons. As a first time home buyer struggling to get the best down payment, you should understand that the amount you put down will have an impact on your monthly mortgage and interest rates. If you are interested in the smallest rates possible, you can go for a 30- years fixed mortgage program. You can as well go for a 20 or 15-year fixed loan if you can afford larger monthly payments.
- Be Sure your Total Housing Costs are Affordable: Too many people are proven to be house-poor, this means they spend far too much of their income on their house and don’t have enough money for other things. Not a good idea to be one of them! You need to make sure your total monthly housing costs, including your all property taxes, mortgage, utilities, insurance, and homeowner’s association costs are affordable for you. Normally, experts would advise your home shouldn’t take more than 30% of your income, if you look at it critically, you’ll realize this percentage should be even lower for those with other big financial goals.
To know you’ll be able to afford the home you’re going for, be sure to understand your all-in cost expense each month, including your mortgage and other expenses. Do this and get out of the house-poor cycle.