Buying a home can be exciting and anxiety-inducing at the same time, especially for a first-time homebuyer – it’s difficult to know exactly what to expect during the purchase process. The learning curve can be steep, but most of the issues can be resolved by doing a little financial research. Here are five things to consider to help the process go smoothly.
- Check your credit.
Your credit score is one of the most important factors for qualifying for a loan to buy a house. Additionally, the standards are much higher when buying a home because it’s such a long-term valuable purchase. It’s best to build up your credit at least six months before shopping for a home.
Just because you pay everything on time doesn’t mean your credit is crystal clear. The amount of credit you’re using compared to how much is available can really sink a credit ratio. The lower the utilization rate, the higher your score will be. Ideally, that means first-time buyers will have a lot of available credit.
It’s best to get a credit report and check what’s going on with your credit score. Scour the report for mistakes, unpaid accounts or collections accounts. Anything that stands out as unusual or something you think may be held against you may very well detriment the home buying experience.
- Evaluate your liabilities and assets.
Once your credit is in order, it’s important to take stock of what you have available. Buyers should know that lenders will have some insight on how your income looks. For instance, some professionals, like self-employed individuals or commissioned salespeople, may have a difficult time getting loans compared to stable, salaried workers.
Additionally, how does your money look right now? Do you have excess income? Are you on a tight budget? These factors can affect whether it’s feasible to purchase a home. Track your spending for the first few months before you make a big purchase like that.
- Organize your documents.
Homebuyers must document their income and taxes when applying for mortgages. That means two recent paystubs, previous W2s, tax returns and 2 months of bank statements. They want to see each page, even the blank ones.
- Qualify yourself.
Calculate how much you can spend with your income and in order to see how much you qualify for. By figuring out your debt-to-income ratio, you’ll have a good idea of what you will be paying monthly and what your down payment may look like.
Though there’s not a fixed debt-to-income ratio, about a third of income should go toward housing costs. It stands to reason that you should have a third of your income readily available to go toward this system.
- Figure out your down payment.
It takes a lot of effort to put together the money for a down payment. A lot of budgeting and saving is required before even considering buying a home.
Speak with your mortgage lender when starting the process. Check with friends and coworkers to see what their homebuying tips are, even down to the down payment.
When you have all these tips in tow, it’s time to begin finding your first house. If you’re looking for a home in Arizona, consider this Queen Creek location.