5 Things to do BEFORE Buying a Home
Buying a home is a big deal. This is one of the largest financial purchases someone will make in their life. Preparing is key so that you are in the best place financially when you decide to move forward with purchasing a home.
Tip #1. Save for a healthy down payment. What exactly is the down payment? This is the money you are contributing to the purchase of the home. The larger the down payment the less of a risk you are to the lender. You also are lowering the amount of money you will need to borrow. Good news the days of needing 20% down as a minimum are long gone. You can go as low as 3% down on a conventional loan and 3.5% on a FHA loan. There are other loans that also allow a lower down payment. Regardless, the more you can put down, the better shape you are in. I personally recommend saving 10% of the house price. ($10,000 for a $100,000 home)
Tip #2. Raise your credit above 620. When you start the pre-qualification process the lender will look at your credit score, debt to income ratios, income and other finances. The higher your credit, the better rate you can get and it shows the lender you are more likely to repay back the loan. There are lenders that will go lower, but that will likely come with a higher rate because the liability on the loan is higher.
Tip #3. Create a housing budget. I highly recommend you come up with a housing budget. One of the biggest mistakes I see people making, is buying a home they can not afford and becoming house poor. Just because you are approved for a certain amount does not mean you necessarily want that mortgage payment. Creating a budget will allow you to see exactly what kind of payment you would like to have. I tell all of my buyers, sit and write down all of your expenses. Write down how much you spend on eating out, gas, groceries, trips, etc. Then you will have more of an idea of what kind of payment you would like to have.
Tip #4. Hire a knowledgeable agent/mortgage lender. Purchasing a home is a huge decision that should not be taken lightly. You need someone on your side that is going to go above and beyond for you. When hiring a realtor, always make sure to ask questions. How long have they been in business? What kind of support do they have from their broker? Do they have knowledge of the area? Along with this you will want to hire a competent mortgage lender. Again, I recommend talking with 2-3 and see who can provide you with the best service and experience.
Tip #5. Keep a stable career. When you start the pre qualification, the lender will be looking at your finances. They will want to see that you have been at the same job position/company or similar career field for about two years. This shows stability, and again lowers your liability to repay the loan.
Whether you are looking to buy now, or in a year, it is never to early to start preparing. Download my free e-book below for tips on how to improve your credit and save a nice nest egg for your down payment!
