5 Tips For First-Time Homeowners
The best advice for first-time homeowners is to plan. Even though it may take a few months or even a few years, be sure that it will set you up for success as you maneuver the home-buying process and transition to homeownership.
Here are 5 tips to help you along your journey.
1. Get a preapproval/mortgage
If you’re approved, your lender will tell you how much money you’ll be able to borrow to buy a house. This figure is based on a cursory examination of your credit, earnings, and assets. However, just because you’ve been accepted doesn’t imply you’ve received the loan.
A few conditions must be met to qualify for a mortgage loan. They are:
- A debt-to-income ratio (DTI) of 50% or less
- A down payment of at least 3%
- A credit score minimum is required (580 for an FHA loan or 620 for a conventional loan)
Making sure you meet and exceed these requirements is one way to prepare to become a first-time homeowner. The better your rates and the more money you save, the lower your DTI and the higher your down payment and credit score are.
Learn more: 7 Smart Steps Every New Homeowner Should Take
2. Get rid of your debt
A high DTI could suggest that you don’t have enough money to pay off all of your debts, including your mortgage. So, it’s a big factor for assessing if you qualify for a mortgage or not.
The debt-to-income ratio (DTI) is the amount of money you spend on debt payments each month as a percentage of your monthly income. Credit cards, vehicle loans, student loans, and other personal loans you may have are examples of these debts.
To calculate your DTI, tally up the minimum payments for all of your debts and divide the total by your gross monthly income.
You’ll lower your DTI and have more money available each month if you pay off your debt. This is one way to prepare to become a first-time homeowner
3. Put money aside for a down payment
The standard down payment charge is 3% of the total figure. 3% may not seem like much, but when the total cost is five or six figures, that 3% can add up to thousands of dollars.
It can be difficult to come up with a substantial amount of money, so set aside some time to save for a down payment so you don’t have to dive into your emergency funds.
Depending on the sort of mortgage you obtain, you may be required to make a different down payment. You should aim to save as much as you can for your down payment, regardless of the minimum.
The more money you put down, the less money you’ll need to borrow and the more equity you’ll have at the outset. If you put down 20% or more, you’ll private mortgage insurance (PMI) fees, which is a payment that goes to the lender and doesn’t benefit you at all.
Make sure you have enough money for a down payment. You’ll also need funds for closing costs, which normally range from 3 to 6% of the purchase price. This is one way to prepare to become a first-time homeowner.
Further Reading: Cochrane Real Estate: First Time Homebuyer’s Guide
4. Improve your credit score
A credit score helps lenders figure out what kind of borrower you will be. A credit score is determined by the following five factors:
- On-time payments and payment history – 35%
- Owed amounts/utilization – 30%
- Your credit history – 15%
- Credit types – 10%
- New credit – 10%
A low credit score indicates to lenders that you may not be able to make timely payments, that you are in severe need of credit, that you have too much debt, or that you have limited experience using different forms of credit.
Pay all of your bills on time, avoid opening additional credit accounts, pay off your debt, and keep your credit cards from being maxed out. This will help raise your credit score. Lenders look at your credit history as well. So, examine your credit report to determine if any errors need to be corrected before continuing with the procedure. This is one way to prepare to become a first-time homeowner.
5. Hire a real estate agent to help you find a home
Finding a home and making an offer is easier with the help of a real estate professional. Throughout the process, they’ll be available to provide help and market information.
To find your future home, look through web listings, engage with a real estate agent, and go to open houses. This is one way to prepare to become a first-time homeowner.
You’ll know what to expect when buying your first house if you understand the home-buying process. This understanding will help you relax and avoid any unpleasant surprises along the road. While each circumstance is unique, there are a few things to keep in mind. The tips shared in this article will start you off nicely.