A home purchase is among the most critical financial choices one can make. Home buying can seem like a big hurdle for first-time homebuyers.
It is worth noting that buying a home indicates more than just your financial strength; it involves your choice of house, the neighborhood, the effect it could have on your equity, etc. Knowing the ins and outs of the real estate market and the requirements of a mortgage is where the buying process begins.
However, one need not go to extraordinary lengths to secure a home. This article lists valuable tips for a first-time buyer.
1. Save up
People these days get comfortable with the idea of pulling out a credit card to fulfill their buying desires and worrying about paying later.
However, saving up until you can afford a thing is the best way to achieve financial independence, weather unforeseen emergencies, and avoid debt.
Before you can purchase a home by applying for a mortgage, you must pay a down payment, which might be difficult if you don’t have some money saved despite a good credit score. As a first-time home buyer, endeavor to save for the down payment, closing costs, moving expenses, and maintenance costs to make a quick purchase after finding your dream house.
If you find saving challenging, automatic deduction of your savings as soon as you get paid will go a long way in achieving your savings goal. You can also take advantage of investment opportunities to increase your savings.
2. Maintain a good credit score
A high credit score is a significant determinant when applying for a mortgage loan. While saving up, also work to reduce the load on your credit. With a good credit score, you can negotiate better loan terms, such as a moderate interest rate.
It is good to remember things that could drag your credit score. The following five factors determine your credit score;
- Past payment history
- Debt currently owed
- Utilization of credit score
- Opening and closing of credit accounts
- Management of past loans such as student and auto loans, i.e., credit mix
- Before making any further financial changes, you should see a financial counselor on how to raise or maintain your credit score. It is also essential to regularly obtain your credit report to check for errors and make any necessary corrections.
3. Keep your DTI down
After seeking ways to increase your credit score, you can move on to calculate your DTI (debt-to-income ratio), which measures how much of your monthly gross income (income before taxes and other deductions) is used to pay off debts.
DTI consists of all their monthly reoccurring debt payments, such as mortgage, car, student loan, and credit card payments. Most mortgage lenders require that the DTI is not more than 40% of the borrower’s total monthly income.
This is why you need to check all impulse buying and accumulated debts to increase your chances of mortgage approval.
4. Hire a real estate professional
As a first-time buyer, you most likely can’t find your way around the real estate market.
It is advisable to hire a professional agent to help determine your home choice and a suitable lender and provide a list of available homes while considering your financial strength.
Government or non-profit organizations may provide financial aid to sort out the down payment or closing costs. Work with an agent or a loan adviser to check if you qualify.
5. Apply for a mortgage
Professionals advise that a mortgage can be a better option even if you have the full cash to make the purchase.
After following the above four tips, you can apply for a mortgage. It is without a doubt that your mortgage application will be approved. Note that there are documents required in a mortgage application. They include;
- Pay stubs,
- Two years of tax returns,
- Three to six months of bank account statements,
- Any form of identification and,
- Employment proof
If you follow these tips to the letter, you might be surprised by how easy buying your first home can be.
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