Getting a home that meets your dreams is a fulfillment of self-actualization needs. The home-buying process can be perplexing and difficult, especially if this is your first time. Below are the steps for the first-time home buyers that keep you on track if you intend to buy your first house soon.
Step 1: Learn About Your Credit Report
Lenders consider more than your credit score when analyzing your mortgage application. They’ll also look at your credit history to see how you pay, how much you owe, and how well you manage your money.
Both of these items — your credit report and your credit score — will aid your lender in determining the best interest rate for you. In general, the better your credit, the lower your interest rate will be.
Step 2: Plan Budget Wisely
Examine your finances thoroughly, including your monthly salary and obligations, to determine how much home you can afford.
Following are some general recommendations to keep in mind:
- If you don’t have any debt, you can look at residences that are up to 5 times your total family income.
- If you’re paying off debt with less than 20% of your income, you’re free to look for a home that’s no more than 4 times your income.
- If you’re paying off previous debts with more than 20% of your monthly salary, look for residences that are three times your salary or less.
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Step 3: Preserve Money for Down Payments in Advance
It takes the average American homebuyer 6.5 years to save for a 20% monthly payment, so it’s crucial to start saving early.
Consider opening a separate savings account specifically for your home buying expenses.
You should also sit down and review your financial situation by using the monthly mortgage calculator. Look at areas of your expenditure where you could save money and pledge to put the money in high-yield savings or investment accounts. This may allow you to accelerate the growth of your funds.
Step 4: Don’t Unnoticed the Hidden Cost of Ownership
You’ll be accountable for more than your monthly mortgage once you’ve moved in. There are HOA dues, insurance, real estate taxes, and utilities to consider, among other things. Then there are the costs of maintenance and repairs, which are frequently unexpected.
Before you go out and buy a house, be sure you calculate these expenditures. Look up previous property tax bills in county records to get a sense of what they were like.
To assist you in estimating other costs, you can receive estimates from a few insurance providers and utility companies.
Step 5: Look for a Pre-Approved Letter Before an Offer
A pre-approval letter is a letter from a creditor stating that you have been authorized for a specific loan amount. A pre-approval letter shows the seller that you’re serious about buying the house — it’s confirmation that you can truly afford it — and it could also help you win a bidding war.
Before you start looking for a home, be pre-approved for a loan. There are some professionals who can get you a simplified pre-approval letter in a few minutes, which is much faster than going via a traditional lender.
As a first-time homebuyer, looking for a home might be stressful. You may avoid common first-time homebuyer pitfalls by doing your research and following these guidelines.
