Buying your first home can be one of the most stressful times in your life. However, with the right information you can buy a house for an affordable price, apply for a mortgage, and close the deal within no time. We have listed some of the steps that are needed for you to buy your first home below:
Step 1: Determine What Kind of House You Can Afford
One of the first things to do before actually buying a home is to make sure it’s the right time. Owning a home pays off financially if you are planning to live their long term. Otherwise, there’s nothing wrong with renting.
Although we might have different viewpoints, buying a home should not just be looked at as just an investment. You should want to buy a home because you want to buy a home, not because you just see it as investment.
With that being said, ONLY buy a house that you can afford today and not eventually. If not, then you will be in the hold when it comes to paying the mortgage and may end up being in the hole before you know it.
Step 2: Prepare Your Finances for Paying the Mortgage
Be prepared financially. The worst thing that could happen is if you find your dream home, but then discover that you’re not qualified to buy it. To guarantee that you are financially ready to buy your first home, you’ll need; good credit, cash to close, and a steady income.
Check Your Credit Score
This is always a must, and this means that getting a mortgage requires a good credit score. Hopefully this is not news to you. When you are in the process of trying to find a home, it would be wise to check your credit reports for errors and possibly invest in a few months of a daily credit score monitoring service.
If you’re buying a home with a spouse or a close friend or family member, your mortgage lender will most likely check both buyers’ credit scores during the application process. That’s not to say you’re necessarily doomed if one person’s credit isn’t as good, but don’t rely on if only one of your has a credit score.
Save Money for a Down Payment
After checking your credit score, you will also want to look at how much money you have saved up for a down payment and extra expenses. The down payment for a house is typically anywhere between 3.5% and 20% of the purchase price of the home you are looking to buy.
Get Your Documentation
Your real estate agent will usually tell you what kind of documents to have with you and what to turn in, but typically you will need the following; paystubs, W-2’s, bank statements and, if you have freelance or self-employment income, copies of your last two tax returns.
Step 3: Go shopping for a mortgage
Too often, home buyers leave mortgage shopping to the last minute and watch their dream home go to another bidder who had financing in order. Mortgage pre-approval is a free and no-obligation process that presents you as a qualified buyer when buying your first home.
Comparing different types of mortgages can be quite tricky and confusing. There are fixed-rates, adjustable rates, and others that are priced very differently. You can take out a mortgage for 30 years or as little as 5 years depending on your situation.
Most buyers often look at fixed-rate mortgages. Fixed-rate mortgages are the most common type of mortgage that involves the 30-year fixed rate. Although it never hurts to look at the different types just in case you decide to approach buying your first house differently.
Private Mortgage Insurance (PMI)
If you put less than 20% down, your lender will likely charge you a monthly premium or a private mortgage insurance (PMI). Private mortgage insurance protects the bank if your default on your loan and the value of your home declines.
All of these steps and tips will help you buy your first home. If you do your research and properly prepare, then you will have nothing to worry about.