Maybe you’re just married? Excited! Looking for that wonderful first home that you can entertain family and friends in together as a couple, as a family! Your home is an important piece of your financial future and it’s important to get your finances organized and know what you can afford. Let’s look at the steps you need to take to move you towards your home!
How does your financial picture look? Debt wise, are you healthy? Do you pay your bills on time and are you paying down your debt? Is your credit score good? All of these factor into what a lender wants to see before approving a loan for a house. (A score of 720 and above is generally considered good, and 750-850 is excellent).
Where is your down payment coming from? Do you have it saved in your bank account? Most experts suggest you have at least 20% of the purchase price of the home saved as a down payment. Certainly there are lenders out there that can work with less down payment but there are plenty of good reasons to put down at least 20 percent. Right off the bat you’ll avoid paying private mortgage insurance, or you won’t pay it for very long. “PMI” is typically 1 to 2 percent of the value of the loan, paid monthly. Doesn’t sound like much but if it adds $100 to your monthly payment, it becomes something to avoid.
It’s very beneficial to get pre-approved with a mortgage broker or lender. Pre-approval helps establish how much home you can afford, plus, they can advise you about credit blemishes or other issues. Depending upon your income, debts, assets, credit history, job potential and other factors they can help you find the best solution available in home loan programs. Your REALTOR® can refer you to trusted lenders to get started.
Your monthly house payment will include more than just the principal and interest of your loan. You will have ongoing expenses of home ownership that will need to be factored in as you consider your home purchase. Your lender will help you determine if the taxes, homeowner’s insurance, flood insurance (if applicable), homeowner association dues and utility bills will fit into your budget.
Consider the length or term of your home loan. It is very common to go with a 30-year mortgage as that term produces a lower monthly payment. However, it is very beneficial to try for a 15-year loan, or something in between, as that typically provides a lower interest rate, and is obviously paid off in a shorter timeframe. The payments will be higher so you will have to determine if you are comfortable with the higher payment.
It is not too soon to start gathering paperwork! It’s time to organize and gather your federal income tax records for the past couple of years, recent paycheck stubs, canceled checks for rent and utilities and any other paperwork your mortgage lender might need like credit card and student loan statements.
OK! It’s time to start thinking about your home! How long do you see yourself living in this particular home? If you decide to move after only a short time in your new home it may cost you more money to sell it. Your new purchase may not have appreciated in value enough to cover the costs required to sell it and payoff the loan you took out for the purchase. Your local economy is a huge factor in determining this length of time but you’re going to want to anticipate living in your home for at least 3-4 years typically.
So your next thought is, what type of home will meet my lifestyle and needs? Consider your needs both now and in four years. Will you expand your family in that timeframe? For some folks, it might be that an elderly parent might need to move in with them during that time. Do you need a yard for pets?
In some communities, tax rates can be a big factor in your monthly payments. You might not be able to afford some neighborhoods due to their taxes or home owner association fees so it is good to get a sense of that early on in your home search to avoid any disappointments.
Once you’ve narrowed your choice of communities, it’s good to take some time and investigate the neighborhood and your choice of location. Search the neighborhood online information, check the crime report, the schools, local amenities and neighborhood amenities. Visit the neighborhood different times of day and test your commute. This will all help you feel more comfortable that your home choice will be everything you dreamed it would be!