1. Begin Saving More Money
Saving money can be one of the smartest and most beneficial things you can do before you begin searching for a home to buy. The more money you are able to save prior to your closing day, the better. Not only will you be needing money for a down payment on the home of your choice, but other often overlooked expenses that you need to be aware of and save for are the closing costs, cash reserves, moving expenses and utility deposits.
Your down payment will easily be your largest expense of them all and the amount you put down will depend on both the price of the home you are buying and the type of loan you use to buy that home. The more home you purchase the more your down payment will be.
During the mortgage process you will accumulate various fees for different administrative tasks performed by the different parties handling your loan. These fees are known as closing costs. Closing costs can easily add up to thousands of dollars and that money is due on closing day. Now, it is possible that the seller can chip in (this is known as a seller’s concession) to help cover some of or all of your closing costs, but this isn’t always the case and it definitely should never be counted upon.
Another very important reason for saving money is to ensure you have a financial cushion after your home purchase helping you to adjust through your new mortgage payments. This is known as having (cash reserves).
Moving expenses are oftentimes completely overlooked by first time home buyers. This can be a costly mistake. You may need to buy new furniture. It is highly likely you will need to rent a U-haul truck or hire professional movers to move your furniture and personal belongings.
Another expense that is frequently missed altogether are utility deposits. It’s almost a guarantee that when moving into a new house you can expect to pay for utility services such as water, gas and or electricity, and you’ll also want to save for other services such as phone, cable, and internet expenses . Believe it or not, these are expenses that many first-time home buyers frequently overlook. Transferring your utilities well in advance of moving day will certainly save you from headaches later on down the line and help give you peace of mind. After all, no one wants to relocate to their new home only to find that there is no water and the lights are out. Setting up your services at least two weeks prior to your move in is ideal. It is also possible that your current providers may not even service the new area you are moving to which means you will have to set up all new services. Your specific utility costs will vary depending on the providers you select as well as the services you feel you need that fit your particular lifestyle.
2. Put Together A Monthly Home Owner’s Budget
One of the most important things you can do as a first time home buyer is to create your very own monthly housing budget prior to actually buying a home. This is something that sounds like it can be a bit complicated but surprisingly enough, it is actually quite easy to do and more importantly creating a housing budget for yourself can help you avoid serious financial issues later on down the road.
The first thing you will want to do is to add up your total household monthly net income (take home pay) as well as non housing expenses like car notes, credit cards, department store cards, daycare expenses etc and find the difference between the two totals. Use that total and work down from that number to find your monthly home owner’s budget. The general rule of thumb is to not spend more than 28 percent of your monthly income on a house payment. Make a mental note that this is just a general rule and there is some wiggle room there to play with. Some people will be able to afford to take on more debt and others will be comfortable with less. The key here is that you now have a maximum budget to work off of before you purchase your first home.
3. Know Your Credit And Check For Accuracy
Your credit score will be a vital and determining factor in whether or not you qualify for a mortgage. Your scores are an illustration of your borrowing and payment history. Lenders use these scores as a pricing tool and for risk assessment. The higher your credit score the more likely it is that you’ll not only be approved for a home loan but it is possible you may also secure a more favorable interest rate as well. Although these numbers aren’t set in stone, you can generally rely on the following as a rule of thumb. Scores below 600 might make it more difficult to be approved for a loan, whereas a credit score of 600 or higher puts you in a great position to purchase a home. Scores in the 750 range or higher are considered excellent.
Knowing how important of a role your credit score plays in your ability to secure a mortgage, it is crucial that you get a copy of your credit report from all 3 major repositories (Equifax, Experian, and TransUnion) and check your scores. Take each report and cross reference looking for erroneous errors, identify any inaccuracies and make the necessary corrections as needed. If your credit score isn’t in the ideal range you need it to be, you’ll want to consider giving yourself some time to improve it before attempting to qualify for a home loan. When in the process of buying a home, always confide in your mortgage professional before making any changes to your credit or taking on any new debt.
4. Research Your Local Housing Market
Before you begin searching for a mortgage lender it is imperative that you begin researching your local housing market. Performing market research will help give you a thorough understanding of the local dynamics within your market. A quick and efficient way to begin your research is by doing a simple Google search. Type in the name of your city with the words “housing market” following it and take some time to read the most recent articles, blogs and news relative to the topic to find out what your local real estate market is like. Determine whether or not it is a sellers’ or a buyers’ market, or does your local real estate market lie somewhere in the middle? Are properties in your market sitting for a long time or are they selling relatively fast? How competitive is the market, and is there enough inventory out there or are there a lack of homes to choose from? Knowing these things beforehand is invaluable, and can help give you leverage as a home buyer and may even make it possible for you to negotiate for more favorable terms when the time comes for you to purchase your home.
5. Get Pre-Approved Early On
Last but certainly not least, you will want to get pre-approved with a mortgage lender or a bank as early on as reasonably possible. When a mortgage lender pre-approves you, they perform a complete income and asset analysis and financial review providing you with a maximum price you are able to spend on the home of your choice.
It is important to know what this number is prior to house hunting for several reasons. One of those reasons is that real estate agents as well as home sellers will take you much more serious when you are pre-approved. It shows them that not only are you ready and willing to buy but that you are actually capable of purchasing.
As true as this is, it certainly is not the most important reason. A more imperative reason you want to be pre-approved is so you can set reasonable expectations based on actual figures when you are doing your house hunting. You will know exactly how much you can bid on a home when out shopping. Why is this important? Well, if you happen to get caught up in a bidding war on a particular property, knowing what your purchasing power is can be quite essential. Bidding wars are time sensitive and the last thing you want to have to be doing is confirming your financing on a home you love while other offers are on the table. In addition, not only will you have accurate figures and know exactly how much house you can afford, but you will also save time by not going to open houses and making offers on homes that are outside of those figures.
Being pre-approved will give you the confidence needed to enter the market place as a future home buyer, and getting pre-approved is not as difficult or as time consuming as one might think. Be prepared however to provide the mortgage lender with a feasible amount of paperwork, and know that these documents can vary from lender to lender. Having these ready to go ahead of time can save a ton of hassle and headache.
For the typical homebuyer, here are a few of the documents you will need to gather:
⦁ Proof of identity: Driver’s license and social security card
⦁ Two years of W-2 forms from your employer and 2 years of federal tax returns
⦁ Most recent two months of banking statements (including blank pages) this includes your checking and savings, as well as any investment accounts such as CDs, IRAs, and other stocks or bonds
⦁ 1 month of most recent paystubs (some lenders may require more) showing year-to-date income
⦁ A list of any other real estate holdings
⦁ Two years of residential history, including landlord contact information if you rented
⦁ Down payment proof of funds such as bank account statements (if the down payment is a gift you will need to provide a signed letter from the donor clearly stating the money is strictly a gift and not a loan)
I am a Loan Officer Assistant, Blogger and the Social Media Manager for the Willow Bend Mortgage Team Corpus Christi branch. I’m a proud family guy and blessed father of two beautiful girls ages 16 and 8. I have a genuine passion for the mortgage business and sincerely enjoy being in the position to assist families in Corpus Christi and throughout the Coastal Bend get to experience the amazing joy of home ownership.
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