Pay off debt
Know your credit score
Determine what you can afford
Talk to a Realtor
Those who fail to prepare, prepare to fail. And nobody likes failure. So let me help you prepare for buying your first home. Buying a house is a big investment, but it doesn’t have to be stress inducing. In fact, the better prepared you are, the smoother the process will be. In this post, I outline what you can start doing now to help you buy your first home, even if it’s years away from now.
You’ll need cold hard cash for a down payment. There’s no way around it. Set up a separate fund for a down payment. If you can, set up direct deposits immediately when you get paid so you don’t even see the money. Don’t use your emergency fund for a down payment. You might need it later. A house isn’t an emergency. Also, the more you put down, the less money borrowed, and the less you’re paying in interest.
Houses are expensive, so it might take some time to save up 20% of the home price. Keep the money in a high yield savings account, CDs, or something like Treasury Bills. This money isn’t for betting on stocks. You want it to be secure, and relatively liquid. If you know it’s going to be several years before you’re ready, it’s not going to hurt to do a CD ladder, or something like that.
2. Pay off Debt
Debt is expensive. If you owe any money, work to pay it back as soon as you can. I’m talking about bad debt. Like credit card debt. I’m not saying walk down to the bank and pay off your entire car loan at 1.6%. Lenders are going to look at your debt to income ratio, and from there determine the risk involved. In a similar sentiment, pay your bills on time.
3. Know your credit score
The better your credit score, the better the terms of the loan. If you have bad credit, or just think it could be better, take time and work on it. It can save you thousands in the long run. Aside from the savings, it’s a good thing to monitor in case anyone takes out loans in your name and doesn’t pay them back.
4. Talk to a Realtor
It doesn’t cost anything to talk to a Realtor. As a first time homebuyer, you’ll be happy to know that the seller pays the commission. In my experience, Realtor’s love talking about real estate. Even if you’re just starting to think about thinking about buying a house, ask your friends if they know any Realtors (I’m right here!). Local Realtors can assist you in identifying what you’re really looking for, as well as help with state and local assistance programs.
5. Determine how much house you can afford
There’s a lot of confusion around this, and it’s going to depend on individual circumstances. You’ll need to have a grasp of your finances in general. Know what your earn, what you spend and what you save. Knowing your credit score will help you estimate your interest rate, which could play a big role in your monthly payment.
If you’re in good financial standing, with minimal to no debt, you can get a rough estimate by multiplying your income by three. If you have a more complicated financial situation, you’ll need to know some details. There’s also something called the 28/36 rule. Essentialy, your mortgage payment should not exceed 28% of your income, and total combined debt payments should not exceed 36% of your income. Ask your Realtor to recommend a CPA or mortgage broker to help you more accurately determine what you can afford.
6. Get Pre-Approved
Once you’ve done everything previously listed, it’s time to get pre-approved for a mortgage. There’s no reason not to have a pre-approval letter, unless you’re paying cash. It lets sellers know that you’re serious, and that you can afford to make the offer. It makes for a more seamless transaction and a faster closing.
If you’re looking to buy your first home, or are just thinking about looking to buy your first home, give me a call! I’d love to chat and would be happy to answer any questions. My cellphone is 617 528 8461 and my email address is email@example.com