There are few things as thrilling—or as terrifying—as looking for your first home. Odds are it’s one of the biggest financial transactions that you’ve ever made, and it’s understandable that you’ll want as much helpful advice as you can get. What’s the best option for figuring out a sound strategy for the homebuying process? Speak with a mortgage provider. They can help you figure out all of the information you’ll need as well as giving you a good idea of what you can afford. When you’re ready to make the leap, they can get you preapproved.
We understand that you may not be ready to get that involved, however. If you’re starting to think about purchasing a home but want the most basic instructions on how to get ready for the process, check out this list of three tips to ensure that you’ll be in prime financial shape when you’re set to take more drastic steps.
It may seem obvious, but we can’t put enough emphasis on making sure that your credit is in the best shape it can be when you enter the housing market. The rates you’ll receive, and therefore the homes you’ll be able to afford, will vary greatly between a “fair,” “good” and “great” rating.
There are quite a few things you can do to help insure your credit score. The most obvious is to pay your bills on time, regardless of what they’re for. Electric bills, car payments, student loans…don’t fall behind or your score will suffer.
Even if you pay your credit card off regularly, it still pays to make sure that you don’t push your credit limit too far. A good rule-of-thumb is to never have more than 20 percent of your credit limit unpaid at any given time, as this will draw questions about your financial stability (regardless of whether that’s fair or not).
Lastly, don’t apply for new credit. Hold off on other major purchases that will require financing, and don’t open any new credit cards. These events will ultimately lower your credit score, perhaps enough to impact the rating you can get in the short run.
02) Upfront Costs
It’s one thing to look at a housing purchase in terms of how much it will cost you from month-to-month, but don’t forget to consider how much more you’ll be paying upfront in the form of a down payment and closing costs.
This will ultimately impact how much home you can afford, as a typical down payment is 20 percent of the home. If you buy a $300,000 home with a 3.5 percent interest rate, you’ll be looking at payments of roughly $852 a month, with a 30-year mortgage. Sounds affordable. A $60,000 down payment? Not so much.
If you’re thinking about switching jobs and you’re also looking to buy your first home…don’t do it. The latter, that is. People who switch positions frequently, even within the same field, shoot off red flags to lenders. It draws into question whether the borrower will continue to be financially stable down the line, or if they’ll fall in unemployment.
Those who are self-employed should also be aware of different standards set for those who are their own bosses.
Keep these factors in check and you’ll be well on your way to landing your first home. Good luck, and be sure to speak with a lender to get the best financial advice moving forward.
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