Steps to Take Before Buying Your First Home

Buying your first home can be an exciting, but difficult process. We’ve highlighted some steps you should take before making such a big commitment.

Purchasing a home is a complicated process, which can become even more difficult if you’re a first time buyer. However, if you are in good financial standing and plan on living in the area at least three to five years, applying for a home loan is a smart move.

When analyzing your loan application, your lender will take multiple factors into consideration. Lenders are usually looking for buyers who have been employed for at least two years. You should also have some savings available, preferably to cover at least two or three mortgage payments. Good credit and a sizeable down payment are also essential when buying a new home.

Still not sure if you are ready for such a big commitment? Take a look at the steps we have highlighted below to see if you are on the right track.

Deal with your debt

If you are planning to buy a home, start dealing with your debt as soon as possible. You don’t have to pay off student loans, auto loans or other generally low-rate debt before getting a mortgage. However, you must take care of your credit-card balances. When it comes to your credit score, a good credit card balance is less than 30 percent of your credit limit.

Save for a down payment

Usually, it’s good to have a down payment worth 20 percent of the home price. There are ways to get around this number, with zero-down or low-down loans, but you will have to pay private mortgage insurance or settle for higher interest rates. By having a sizeable down payment you also start off with some equity, in case you have to move earlier than expected.

Consider additional costs

Owning your own place comes with a set off new responsibilities. You will have to maintain the property, pay for repairs, insurance and property taxes. Consider these costs as well before going house hunting. Make sure you know what you're getting into before making any decision you might regret later on.

Start living on a budget

In order to make sure you will be able to make ends meet every month, start living on a budget as soon as possible. Carefully plan your spending, so you are able to save enough money for the down payment. You will develop money-management skills and will become more financially responsible. Draw up a mock budget for homeownership to figure out what type of house you can afford.

Sort through mortgage options

When applying for a home loan, make sure you do your research before settling on a mortgage. There are thousands of options available. Include some of the biggest national mortgage lenders, local lenders and online brokers in you search. After all, you want to get the best mortgage rate and terms possible. Make all your mortgage-related inquiries within a short period of time. This way, your inquiries will count as one and your credit score won’t be affected.

Get pre-approved

Don’t make the mistake of starting to shop for homes before getting pre-approved. It’s important to know how much you can afford in order to avoid getting disappointed later on.

After you get your financial situation under control, save enough money for a down payment and find a reliable lender, the fun really begins. Happy house hunting!