Are you thinking about buying a home and have no idea where to start? Don’t worry… you are not alone! The process of buying a home can seem pretty intimidating at first. But, I’m here to give you a few tips on where to start when the thought of purchasing a home crosses your mind.
Saving for Your Down Payment
One of the first steps you want to take when you are thinking about buying a home is to start saving for a down payment. The earlier you start saving, the more you’ll have saved up when you are ready to begin searching for your home. And it will be one less thing to worry about when it comes time.
When saving for your down payment, your goal should be set at 20% of the purchase price. But, there are first-time homebuyer programs and Federal Housing Administration (FHA) insured loans that require a lower down payment amount. So, on average you want to expect to save about 5-20% of the purchase price of homes in your price range. And look into what options might be available to you. But keep in mind that even though you might only be required to make a minimum down payment, the more you put down on your home, the more you will save in the long run. The higher the down payment, the lower the loan amount will be, saving you more on interest, fees, and potentially private mortgage insurance (PMI).
Build Your Credit
If you are thinking about buying a home, knowing your credit score is going to be very important for you. You will want to obtain a copy of your credit report and start from there. Credit scores can range from 300-850; with a score of 850 being a perfect credit score. What lenders are looking for though is a credit score of 660 or higher, the higher your score is, the more they will be willing to lend and to get the best interest rates.
If your credit is not in “perfect” shape, that’s okay. There are always ways to turn it around and start increasing your score. When you first get a copy of your credit report, go over each item and check for any errors. If you come across one, make sure you dispute it and get it taken off your report, boosting your credit! After that, start paying down your existing debts and pay all your credit bills up-to-date and on time. Increasing your score can take some time, so start as early as possible and learn the ins and outs of your credit.
Unless you are going to pay cash for your home, you will want to make sure that you get pre-approved by a mortgage lender. When talking to a lender, they will pull your credit history, income, and calculate your debt-to-income ratio. Giving you an amount that they will be willing to lend to you for your home.
The pre-approval you will receive is kind of like your “good ahead” when looking for a home. What do I mean by that? You have saved up your down payment, you have a credit score that is worthy of homeownership, and the pre-approval letter is letting you know that you are ready. The bank has approved you up to a certain amount, and you are now ready to start looking at homes!