Here's a checklist to help first time buyers get your finances in order even before you start your first house hunt.
First Time Buyers - Read On!
You may be ready to buy, but there are things you need to do before you start touring listings and submitting offers. Here are five tips to help you stay on track so that the path to buying your first home is smooth.
1. Determine total monthly housing budget
What can you really afford? The total should include estimated taxes and home insurance costs, too. After all, in some places, those can nearly double your mortgage payment! Talk to an insurance agent to get an estimate of the insurance in the areas in which you’re looking to buy. Mortgage financing giant Fannie Mae recommends home buyers spend no more than 28 percent of their income on housing. Buyers may start to struggle financially when housing costs take 30 percent or more of their income, financial experts warn.
2. Factor in the closing costs
Make sure you find out about the costs of a transaction. Be sure to have closing costs explained to you: everything from origination fees, title and settlement fees, taxes, and prepaid items (such as homeowners insurance or homeowners association fees). Ask for a general estimate to help ensure you’re shopping within your budget from the onset. You’ll get more precise numbers from your lender later in the loan process.
3. Examine creditworthiness
Will you be able to qualify for a loan? Get a free annual credit report and look for any errors or unresolved issues. Also, contact the credit reporting bureau immediately if you spot any errors. And, find out your FICO credit score, which most lenders use to help determine an interest rate for financing.
4. Prepare documents
When applying for a home loan, you will need to be ready to show a lot of documents. These include pay stubs, bank account statements, W-2s, tax returns for the past two years, statements from current loan and credit lines and names and addresses of landlords for the past two years. Gathering these together ahead of time will help make the process smoother and faster.
5. Get Pre-Approved
Getting pre-approved not only helps you get a better understanding of what you can truly afford, but it also puts you in a better position to submit an offer when you find a home you love. Also, financial planners say applying to multiple lenders in the same month may help boost a buyer’s chances of getting a loan approved at the best rate possible without dinging your credit score too much.
If you're ready to start looking for a home, check out these tips for what to look for when house-hunting: 9 Tips for Successful House Hunting.
Source: “11 Must-do’s for the First-Time Homebuyer,” Las Vegas Review-Journal (Aug. 7, 2017)