Before you start working with a Realtor and spend your weekends at open houses, you’ll need to get your “financial house” so that when your perfect home appears, you’ll be ready.
Consider these factors before making the leap:
Check your credit
It all starts with your credit report. You can obtain a credit history at www.annualcreditreport.com. For about $7, you can get your score from one of three credit bureaus, providing you with a balance history for credit cards, checking accounts, and loans – and will display outstanding bills. If you don’t have any lines of credit (such as credit cards), it’s wise to open an account.
How much can you afford?
When considering your financial options, focus on the proposed monthly payment – not just the sales price. Assess your monthly expenses to determine how much you’d like to spend on your home. Your debt-to-income ratio should be less than 60% (in other words, your proposed monthly housing payment + any other recurring monthly payments must not exceed 60% of your monthly income). However, you may want to keep your mortgage expenses lower and put any extra money into savings to build a surplus for home maintenance, repairs or general emergencies.
Prepare for a down payment
In today’s market, you’ll need to provide at least 5% of the final purchase for a down payment. Think about possible resources and start saving. Keep in mind: a financial gift can apply towards your down payment (as long as you have matching funds available). The same applies for money in a CD, 401K, or IRA account. Government-funded programs providing down payment assistance are becoming more popular and widespread.
Find a job
It’s tough to obtain a mortgage if you don’t have a job (unless, of course, you have a small fortune tucked underneath your mattress). However, an employed co-borrower can join you on your loan. An underwriter will need to verify their income in order for you to qualify.
Plan your search
Consider these questions: How long do you plan to stay in your home? Are you looking for a fixer-upper, or a move-in ready home? Know your goals before you start looking at every home on the market – this will save you time, and allow you to jump on key properties when they become available.
What are your financial goals?
Are you looking to pay less over time – or pay less on a month-to-month basis?
The bottom line
Buying a home will be one of your most rewarding experiences – and, in the end, should be a straight forward process involving a series of important steps. Successful homebuyers begin with a clear plan, set realistic expectations, and ask questions. Remember: your real estate team will be there to help you every step of the way.
Good luck!
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Comments
2 Comments so far
Baxtor
I keep hearing about this 7 day waiting period before the papers are signed. could you please tell me what new law or ruling this is.
Ken Perlmutter
Great question, Baxtor.
The 7 day “waiting period” is a new requirement based on the Mortgage Disclosure Information Act (MDIA) that went into effect this summer. No loan can be closed until 7 business days after the initial disclosures have been signed (including the Good Faith Estimate and Truth-in-Lending with APR forms).
What does this mean for you?
Whether you’re purchasing, refinancing, or obtaining a home equity loan, you’ll need to sign a disclosure agreement at least 7 days prior to the date of your closing. The government put this measure in place so that mortgage customers have time to review fees and terms involved in their upcoming transaction.