The thought of buying your first home can be stressful. Purchasing a home for the first time is new, and even though you can ask your family and friends about the process, you’re still going to have questions and concerns no matter what. Luckily, there are ways to prepare for buying your first home. The key is figuring out what you should do and what you shouldn’t do. Here are a few tips, so you can prepare for purchasing your first house.
1. Consider Your Loan Options
There are several loan options out there, including First-Time Homebuyer (FHA) Loans, conventional loans, bank statement loans, and VA purchase loan, just to name a few. When it comes to considering your loan options, find a reputable mortgage lender in your area to find out what your options are. Remember, most loans, except for VA loans, will require you to put some percentage of money down on the house, so make sure that you have enough money saved to cover it.
2. Check Your Credit
Along with your income, lenders will look at your credit report to determine how likely you are to repay the loan, so it’s important for you to know what your credit score is. Make sure to pull your credit report and look for mistakes and inaccuracies that could be bringing you down. If you find mistakes, contact the credit bureaus to have them corrected.
If you find out that you have a lower credit score than you thought, it might not be the right time to purchase a house. Instead, make changes to your financial habits to improve your credit score so that you can get the best mortgage rates.
3. Have Multiple Accounts
Lenders would like to see that you have at least three open accounts, which can consist of credit cards, student loans, and car loans that have been open for at least one year. Closing these loan accounts can impact your credit score for a short time, so make sure that you avoid canceling credit cards if you want to buy a house within the next few months.
4. Save Money
Most loans will require a down payment. A conventional loan, in particular, will need at least 20% down or more. The good news is that the larger your down payment, the more you can save because you won’t be required to get any additional insurance. Not only that, but your mortgage payment each month will be lower because you put down more money and require less from the lender.
If you need help saving money for your down payment, you can open a savings account that’s just for the downpayment or use a budget app to help you start saving more money.
5. Don’t Increase Debt
Along with your income stated on tax returns, your credit score is an important factor that can determine whether or not a lender will give you a home loan, but your debt-to-income ratio is also crucial. The more debt you take on when you begin the approval process, the more likely you are to reach the maximum debt-to-income ratio, which means that you will be less likely to close on the home loan.
6. Don’t Switch Jobs
Most mortgage lenders like to see employment histories of at least two years for any loan. While sometimes you can’t control what happens in your professional career, try to stay off of the job boards after you’ve decided to purchase your own home, so you’re not tempted to change jobs. While many lenders will still approve you if you change jobs but remain in the same industry, staying in the same position for years will increase your chances of mortgage loan approval.
Buying Your First Home
Buying your first house doesn’t have to be stressful, as long as you have the necessary information on hand when you begin the mortgage approval process. Be prepared to hand over tax forms, profit and loss statements, pay stubs, and more to become eligible for a loan. The next step is finding a realtor to work with so that you can find your dream home.