Buying your first home is a big step. How do you really know that you are ready? There are hundreds of thousands of people out there that are considering buying a home. This is partly due to low interest rates over the past few years, and by a real push on the part of the housing industry to show the benefits of homeownership. You've been saving your money and have enough for a down payment and your closing costs. The down payment will need to be between 3% and 20% of the purchase price or property value, whichever is lowest. Always aim to have that 20%. If you don't put at least 20% down, you will have to purchase private mortgage insurance, which will increase your monthly payment. Closing costs usually run you 3% to 7% of the purchase price. You should receive a Good Faith Estimate of these costs within three days of applying for a mortgage. Keep in mind that this is only an estimate, and not the actual costs. But it should be close. Plan to pay the 7%, and then perhaps you will have some left over. It is better to have more than you need. You know you are ready when you know how much home you can afford, and you are willing to stick with this. Your monthly mortgage payment should be less than 25% of your gross monthly income. There are lenders that will tell you that you can afford much more, but don't listen to them. Stick with what your budget says you can spend. You are also aware that there are more dollars in a home than just the mortgage payment. You will need homeowners insurance, money for utilities, maintenance costs and property taxes. Owning a home is a lot of responsibility. You can't just pick up and move at 30-days notice anymore. It is important to take the time to check your credit report for any errors and inaccuracies. Almost 90% of consumers will have an error on their credit at some point. These errors can cost you thousands in increased interest rates. Don't ever go to a lender unprepared and uninformed. Know your credit score. If you look early enough, you may have time to fix errors or build your credit back up. Plan on at least six months for this, just in case. You also are ready if you are willing to hold off any other loans or credit until you close on the property. The same goes for changing your jobs. You need to hold your life "as-is" from now until the closing. No new cars, no credit cards and no new jobs. Show that you are stable. Part of being ready is just feeling ready. If you know what homes sale for in your area, you are definitely ready. If you don't know the above things, then take the time to figure them out. There is more to buying a home than just shopping and moving. |
