While preparing to buy your first home, there is nothing more valuable than organization and planning. Financially, this can be scary, but with the right preparation and research, it’s very manageable. Homeownership is perhaps the most important life investment for someone to make.
How to Prepare Financially for Homeownership – Do’s
This bit of advice can help consumers—particularly first-time home buyers—financially prepare as they start the process of becoming a homeowner. Take every step you can to make sure you’re financially secure enough to tackle the investment. Along the way to homeownership, making sure you have a plan in place for debt reduction is important. Here are some necessary steps you should take well before you start looking for a new home.
Do check your credit report: Know your credit score. It is the first thing a bank will look at when determining whether or not they will grant you a mortgage. Double-check the report for mistakes or inaccuracies. If there are some, check with the credit bureaus. If you find that your score is lower than it should be to purchase a house, take some time to improve it, so that by the time you are ready for homeownership, it’s at the appropriate level.
Do pay bills on time: One of the most important aspects of the home buying process is your credit history. Late payments are damaging to your ability to take out a mortgage. Make sure to get on track with your credit cards, utilities, and student loan payments. Set up a schedule and budget in order to pay bills as soon as they are due.
Do have multiple trade lines: Lenders like you to have at least three, usually more, trade lines. These can consist of credit cards, student loans, or car loans that have been open for at least a year. If you close any of these lines, it will affect your credit score negatively.
Do save: If you have money saved up, you can put down a large down payment, meaning 20 percent or more. The larger the down payment, the more you can save in additional insurances, and it will give you more buying power.
Do a home buyer course: Take a first-time homebuyer education course. You can find a plethora of valuable information from these courses, many of which are offered online. They provide potential home buyers with detailed information, advice, and budgeting tips on how to purchase a home. With a homebuyer certificate, you will qualify for many loan products that you wouldn’t otherwise qualify for. A first time homebuyer certificate is good for two years after completion.
How to Prepare Financially for Homeownership – Don’ts
Do not go in blind: Do your research. There are many factors to consider when buying a home in addition to just the cost. Make sure to keep property taxes, homeowners insurance, utilities, maintenance, fees, and repairs in mind. These costs can add up quickly. Also, be sure to check on interest rates and then determine when the best time to buy is.
Do not misunderstand the process: Buying a home is a long and complicated process. Don’t misjudge the significance of each necessary step along the way. Take it slow, and remember that it takes time.
Do not increase debts: Your credit score is important, but in addition to that, your debt-to-income ratio is crucial for loan approval. The more debt you take on after you begin the loan approval process, you could be in danger of reaching the maximum acceptable debt-to-income ratio which will jeopardize your ability to close on the loan.
Do not move your finances around: While going through pre-approval, lenders look at your most recent bank statements, but they check them again during underwriting. Lenders will wonder about unusual deposits or withdrawals, and you’ll need to make sure to provide them with the proper documentation for a paper trail.
Do not change jobs: Sometimes we can’t control what happens to us in our careers, but if possible, stay consistent in your job and your salary. Banks will take note of this and look for stability during mortgage approval.
The feeling of purchasing your first home is truly fulfilling. After waiting and hoping, your seller has accepted your offer, your loan has been approved, and the home is yours. It’s a process, and it’s a long one, just be sure to be ready for it!
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.