Are you planning to buy a home?
Whether it’s your first home or an upgrade, moving is an exciting experience. Nothing beats the thrill of first laying eyes on your dream house. But if you’re new or inexperienced, buying a home can also be an overwhelming, daunting process.
It doesn’t have to be! Keep reading for 5 tips on buying a home you need to know.
1. Know Your Credit Report
When deciding if you qualify for a mortgage, lenders will look at your credit report. This is much deeper than a simple credit check and it evaluates:
- Existing debts
- Payment habits
- Financial health
Both your credit score and your report determine what interest rates you’ll get. Or if a lender will even give you a mortgage at all. In general, the better your credit is, the lower interest rates you’ll face.
Make sure you review your credit report often and adjust your habits to improve it. Pay down as much debt as you can before applying with any lenders.
Alert the credit bureau right away if you spot errors and get them fixed. You can get a free report each year from bureaus like Experian or Equifax.
2. Work Out What You Can Afford
Go through your finances (monthly income and expenditure) and work out what you can afford. Here are some general guidelines you can use when buying a house:
- Debt-free: Go up to five times your total household income
- 20% of income pays debt: Go up to four times your household income
- Over 20% goes to debt: Only go up to 3 times your household income
Never stretch yourself so that you’ll live paycheck to paycheck when you buy a house. You don’t want to worry about missing a mortgage payment. You must set a realistic, comfortable budget and stick to it.
3. Have a Solid Down Payment
For the average American, it will take around 6.5 years to save up a 20% down payment for their first home. We cannot stress enough when house buying you want to start saving early.
Consider having a savings account that only stores your down payment savings. This is where it’s important to have a budget in mind for what you’ll be able to afford and what you need to save.
4. Know the Costs of Owning a Home
Once you buy a house, you’re responsible for all the upkeep costs. There is more to pay than your mortgage. You have things like:
- Insurance
- HOA dues
- Utilities
- Property tax
And more. Then you have the cost of repairs and maintenance to keep your home in good condition.
Make sure you take the time to understand these costs and factor them into your budget. Get some insurance and utility quotes, and find out your local property taxes.
5. Get Pre-approved
A pre-approval letter shows a lender has pre-approved a loan for the stated amount. By including a pre-approval letter when home buying, you show the seller you’re serious.
It’s proof you can afford the price and could give you the edge in a bidding war. Always get pre-approval before you look at the housing market. Especially when you’re looking at local homes for sale in desirable neighborhoods.
Buying a Home Made Easy
So, there you have it! Now you know these 5 tips, you’ll be better prepared for buying a home.
Preparation is vital and you want to check your credit report before you do anything else. Make sure it’s accurate, and improve it if your score is below average.
Know your budget and stick to it, you don’t want to struggle to make your mortgage payments. You’ll also want to save up a strong down payment to reduce your mortgage. The more you prepare, the stronger your position will be.
If you found this article helpful, make sure you check out our other blog posts for more.Purchasing a home is a big decision that should take careful consideration. Make sure you know these top 3 pro tips for buying a home.