You probably have a lot of goals for this year— one of which might be to buy a home this year. Homeownership isn’t something to rush into, though. You want to make sure you’re financially and emotionally ready to take on the challenges (and joys) of owning a home.
Step 1: Check Your Credit
One of the first things you should do if you plan to buy a home this year is check your credit. The higher your credit score, the lower your interest rate and the better the terms of your mortgage. Checking your credit doesn’t just let you see where you stand in terms of score. It also allows you to see if there are any mistakes on your report that need to be corrected before you start the process of applying for a mortgage. Typically, it’s a good idea to stop applying for other forms of credit or loans about a year before you begin the process of buying a home.
Step 2: Set a Target Amount
Once your credit is in order, your next step is to figure out what you can afford to borrow. A lender might give you a mortgage pre-approval letter, which will state how much you can potentially borrow. However, don’t let that amount guide all of your decisions. Look at your current income and any debts you have. A best practice is to make sure your housing expenses do NOT make up more than 28 percent of your gross income each month. But, that amount can be lower if you have more debt or if you have other financial goals in mind—such as saving for your child’s college education.
Step 3: Save Up for Extras and Surprises
The price of the house isn’t the only thing to consider when planning to buy a home. You also want to take into account the amount of interest you’ll pay each month, property taxes, and the cost of keeping up the home. There are also closing costs to think about. Closing costs can be several thousand dollars, and are due when you actually buy the house. Before you buy, it helps to not only have enough saved up for a down payment, but to also have at least three months of mortgage payments set aside (just in case).
Step 4: Focus on Location
What you can afford influences where you end up living. However, that’s not the only thing you should think about. Make a list of the things you need from your home’s location, such as easy access to public transit, easy parking, or a thriving community.
Step 5: Learn the Terms
Buying a home means learning new vocabulary. Make sure you understand the difference between a fixed and variable interest rate, what private mortgage insurance is, as well as what the various mortgage options are (and what they mean). If you don’t know, ask your housing counselor, lender or agent.
Step 6: Find a Reliable Agent
Look for a real estate agent who works with buyers. You want an agent who’ll always be on your side fighting for your interests. If your agent is working with you and the sellers, there’s a conflict of interest.
Step 7: Don’t Rush Yourself
Finding the right home takes time. If it’s been some time and you still haven’t found the right home, don’t just panic and purchase the next one that comes along. A home is a huge investment and you want one that you’ll love for years to come.
If you need more help, the counselors at the HUD certified CESI Homeownership Center are here for you. Contact us today if you’re ready to begin the home buying process.
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Consumer Education Services, Inc. empowers people to overcome their financial challenges and lead financially-healthy lives.
CESI is NOT A LOAN COMPANY