If you’re thinking about buying a home but you’re currently renting, we can help you figure out if you’re really ready. This checklist explains what you need to do to prepare to buy your first house.
What to Do Before You Start House-Hunting for Your First Home
If you’re buying your first home – or, at least your first home in a while – you’ll have to prepare ahead of time by:
- Figuring out how much house you can afford
- Coming up with a down payment
- Sprucing up your credit score
- Researching your mortgage options
- Finding the right Realtor®
All this happens before you start searching for your dream home, so the sooner you start, the better off you’ll be.
Figuring Out How Much House You Can Afford
Subtract all your monthly obligations – rent, car payments, credit card payments, insurance, utilities and everything else – from what you make each month. If you’re doing just fine now with rent, chances are pretty good you’d be able to afford a similar mortgage payment. However, remember that when you borrow more money from a lender to buy a home, your mortgage payments will be higher – which is why coming up with a good down payment is essential.
Coming Up With a Down Payment
Most lenders want you to put down 20 percent of your own money as a down payment on a home, but there are many loan programs that require much less. Some programs allow you to borrow the money for a home with as little as 3 percent down – and VA loans let you borrow with nothing down. However, if you’re putting down less than 20 percent, you’ll have to buy private mortgage insurance, or PMI. PMI protects the lender if you default on your payments. (The exception is when you use a VA loan – in that case, you’re not required to buy private mortgage insurance.)
Sprucing Up Your Credit Score
When you’re buying a home, lenders will look at your credit score as an overall picture of your financial health. Now is the time to start paying down debt and making sure all your payments are made on time. Many experts advise against closing credit accounts, though, because it’s good to show lenders that you’re able to juggle multiple lines of credit without any issues.
Researching Your Mortgage Options
There are hundreds of mortgage products available, including loans that last 10, 15 and 30 years. Even within those brackets, there are programs that allow you to put down less than 20 percent as a down payment, some that have fluctuating mortgage rates, and many more. Start researching your options early to find out what type of loan is right for you.
Finding the Right Realtor
You’ll want a skilled buyer’s agent on your side when you’re ready to take the leap. Your Realtor will help you find the right house, negotiate with the seller on your behalf, and file all the appropriate legal paperwork. He or she will also be there to give you recommendations for contractors, like home inspectors, and can even help you find a lender who can help you get the cash to buy a house.
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