Buying a home isn’t a quick process. You can’t just walk into a real estate agent’s office, browse your options, then walk out owning a home. At a minimum, it’s a good idea to give yourself at least six months to go through the process. Giving yourself plenty of time allows you to get your financial ducks in a row, gives you a chance to better understand your mortgage options, and gives you time to find a home that really meets your needs.
Review Your Credit
One of the last things you want when buying a home is to be turned down for a mortgage because of a surprise issue on your credit report. Take the time to review all of your reports before you start meeting with lenders. You can order a free report, once a year, from AnnualCreditReport.com. The sooner you order and review your report, the better, as it will give you time to correct any errors or to raise your score if needed.
Check Your Savings
Six months before you buy a home you should be focused on saving as much money as possible. For one thing, you want to have a big enough down payment to get the lowest interest rate possible and to avoid private mortgage insurance. For another, you want to have enough set aside to cover closing costs, plus the cost of any surprises that might pop up during your first few months as a homeowner, such as a broken refrigerator or a leaky roof.
Explore Your Mortgage Options
There is no one-size-fits-all mortgage. Home loans vary in terms of duration, interest rates, and down payment amounts. You might find it particularly helpful to speak with a housing counselor about all the options available and to get help understanding which one might suit you best. For example, if you have good credit and 20% down payment, a fixed rate, 30-year mortgage might be ideal. But, if your credit isn’t so great or you only have 5% down, you might be better off with a mortgage program such as the one guaranteed by the Federal Housing Administration.
Make a List of What You Want in a Home
Getting ready to buy a home doesn’t mean just thinking about money. You also want to figure out what it is you want from your house. Make a list of the features you must have and features that would be nice, but aren’t necessary. For example, you might need two bedrooms, and might want 2 or 1.5 baths, but would settle for one bathroom if needed. Other things to think about include location, the age of the house, and outdoor space.
Get an Idea of What You Can Afford
Along with knowing what you want from your home, it is also important to know how much you can afford. If your dream home is way beyond your budget, you have two options. Scale back or wait until your financial circumstances change. Several factors influence how much you can afford, including your income, other debts, and what you have saved. You want to keep total housing costs to less than 30% of your monthly income, for example. Once you know what you can afford, take a look at the cost of homes in your area, so that you have an idea of whether it’ s a good idea to move forward.
The CESI Team is committed to helping you reach your financial goals. If debt keeps you from living the life you dream of, contact us for a free debt analysis today and get started on the road to a brighter future!
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