When you are a first-time homebuyer you can expect a whirlwind of emotions—it is very exciting, yet also nerve-wracking if you are not completely sure on what you are expected to do. However, if you plan ahead and do your own financial homework, these questions can be solved.
Use these five tips to help make the process of buying your first home a breeze.
- Check your credit
When qualifying for a loan, the homebuyer’s credit score is one of, if not the most important factors to take into consideration. It is imperative that you start the process of checking your credit at least six months before you begin the process of looking for a home. To get an idea of where your personal credit stands, visit a credit scoring website, such as AnnualCreditReport.com to get your free credit report. Once you have done so, score the reports for any mistakes, unpaid accounts or collection accounts. Fixing damaged credit takes time, and money, so it is crucial that you take care of this business before shopping for your home.
- Evaluate assets and liabilities
As a first-time homebuyer, you should be knowledgeable about your budget—how much is owed and how much is coming in? It is a smart idea to track your spending for a few months and see where your money is going and coming in from. Furthermore, first-time homebuyers should be well-informed on how lenders will view their income, which requires being familiar with the basics of mortgage lending.
- Organize documents
When in the process of applying for mortgages, homebuyers must document their income and taxes. Usually, mortgage lenders will request a variety of documents—two recent pay stubs, the previous two years’ W 2s, tax returns and the past two months of bank statements. As soon as you decide that you are looking to buy a home, prepare these documents. The process of buying a home can be extensive, however knowing what documents you will need from the beginning will save you time.
- Qualify yourself
It is very important for first-time homebuyers to know what they can afford both up front and monthly before the mortgage lender tells them how much they qualify for. The front-end ratio inquires that no more than 28% of your gross monthly income should towards housing costs. The back-end ratio—the portion of income that covers all monthly debt obligations—should be 36% or less, but in some cases borrowers have been approved with back-end rations of 45% or higher.
- Figure out your down payment
Although figuring out your down payment can be a task that takes a lot of effort, there are programs that can help buyers with their qualifying incomes and situations. It is also a good idea to speak with a mortgage lender when you are beginning the process of buying a home.