Homeownership truly is the American dream. 65% of Americans are homeowners. While homeownership isn’t for everyone, most people that don’t currently own a home plan to in the future.
Buying a house is one of the most important decisions you can make in life. When, where, and how you buy your first home are very important factors that will affect the rest of your life.
If you are interested in buying your first house, you probably feel very overwhelmed. There are a lot of moving pieces in the home-buying process.
This guide will give you a roadmap for becoming a new homeowner. Continue reading to find out how you can move towards your dream of owning a house today.
How Much Can You Afford?
One of the biggest factors that determine what type of house you can buy and where is how much house you can afford. Knowing this can save you a lot of time and heartache looking for houses outside of your price range.
To this, you’ll need to compare your monthly income versus your debt to determine a monthly housing payment you can afford. You will also estimate the down payment you’ll be able to afford.
While the traditional down payment is 20%, there are other mortgage loan types available today that could allow you to pay as low as 3.5% down. You can use a housing affordability calculator to give you an idea of what your budget allows for, and what a mortgage lender will be willing to give you.
With this knowledge, you can start researching potential areas and houses.
Now that you have an estimated home-buying budget, you can start researching areas online. You can search the MLS (multiple listing services) to find out how much homes cost in the areas you’d like to live in.
You’ll also want to pay attention to the property taxes in each area. One city might have an extremely high property tax rate, while the next town over might be much lower. These are expenses you’ll have to pay every year.
Make note of areas that are within your budget, as well as areas that might be slightly out of your budget, but still desirable. You can also start listing out some of the features you’d like your new home to have.
All of this information will help your realtor find the right house.
Getting Your House in Order
As you begin planning and dreaming, it’s time to get proactive and ensure your financial situation is in order. The first thing to check on is your credit score.
Your credit score is essentially your trustworthiness when it comes to borrowing money. Your home will likely be your biggest loan, so your credit score is a huge factor in determining how much money you can borrow and how much interest you’ll have to pay.
In general, the lower your credit score, the higher your interest rate will be. Look over your credit report and see if there are any factors you can improve. Note, it can take 3 months or more for your score to improve after you make positive changes in your score.
If you have other consumer debt, such as auto loans or credit cards, you’ll want to do your best to pay those off. If you have a lot of debt, it can impair your ability to get a mortgage.
Lenders prefer a debt-to-income ratio of 36% or lower. That means spending no more than 36% of your monthly income paying back other loans.
The other financial factor to keep in mind is your down payment. The more money you can put down, the better. See if you can find extra ways to save money or earn more in the months leading up to your home purchase. Down payments can range from 3.5% to 20% or more if you are able.
Building Your Team
Once you have financial ducks in a row, you are ready to take the next big step towards becoming a home buyer. It’s time to build your team! There are a few people you’ll need to have in place in order to buy a house.
First, your realtor will help you find the perfect house for you. As a licensed realtor, they’ll have access to homes and information that aren’t yet available to the public.
Your realtor will find your home, negotiate with the buyers, and help facilitate the final transaction. Don’t worry, sellers are the ones who normally pay for realtors.
You’ll also need a mortgage lender to loan you the money to buy your house. Different mortgage lenders offer different types of loans and may have different requirements. Find one that offers the specific loan type that you will need. You’ll need to get preapproved by your lender before you can make offers on a home.
It also helps to have a lawyer to help you navigate through all of the legal documents and contracts that you will be signing (there’s a lot). And once an offer is made, you’ll need to hire a home inspector to make sure there aren’t any hidden problems in the home that will cost you a lot of money.
Buying Your First Home
You’ve figured out how much money you can afford to borrow. You’ve researched homes and neighborhoods. You have gotten your finances in order and you’ve built your home buying team. Now what?
Well, you get preapproved by your mortgage lender. Then you work with your realtor to find the right house and submit an offer.
Once an offer is approved, you’ll normally have a few days or weeks to have the home inspected and close on the house. Closing means you are signing a lot of paperwork and walking away with the keys to your first home. Congratulations, you are now a first-time home buyer!
If you are hoping to hear those words in the near future, you can contact us today to find out what the perfect mortgage option is for you.