So you decided to purchase a house? However, before stepping out to attend all the open houses and munching on the freebies, you have to understand that it is a huge commitment that requires a lot of planning to ensure that the experience is enjoyable.
The preparation for buying your first home begins months in advance, and the first order of business is to ensure that your financial situation is sold.
- Do you have sufficient funds for a down payment?
Traditionally a minimum twenty percent down payment is mandatory to be able to qualify for a mortgage. So depending on the rough estimated value of the house you are looking to purchase, you must have 20% of that amount in the bank. Keep in mind that there will be additional closing costs, so realistically speaking you must have more than the twenty percent.
- Is your credit score good enough for a loan?
Before a bank loans you any money, it will want information regarding your history as a borrower. They want to make sure that they will get the huge amount of money they are about to loan you back. They will look at many factors, including if you pay your credit card in full each month, or at least make the minimum payment? Do you have a stable source of income? And many more.
- Do you have all your documents needed for buying your first home?The application for a home mortgage requires you to provide sufficient documentation to prove to the lending institute that you are financially sound to take on the responsibility of paying back the loan. Having digital copies of all the following documents endures that they are all in one place.
- Federal tax returns of two years
- Proof of income
- Proof of any investment income
- W2 or 1099 statements of income for two years
- Did you get pre-qualified for a loan?This is a very simple procedure that costs nothing and takes very little time. It may be done online or over the phone. The benefit is that you will be able to get a ball park figure of how much loan you qualify for. Do note that it does not guarantee a loan. It only gives you an idea of what you may be able to get. Armed with this figure along with the amount of money you have in the bank, you will be able to determine the price range of the houses you can afford.
They will do this by looking at your credit report and score. It is a good idea to obtain a copy (simple online procedure that costs only a few dollars) of this report yourself first. This will allow you to ensure that there are no errors that may hurt your chances of obtaining a loan. Also if your report is not all that good due to some errors, you may end up paying more for the loan. So it is best to rectify any issues before you apply for the loan.
If there are no mistakes, but your report is still not that great, then take some time to improve your credit score by paying bills in a timely manner or lowering your debt amount.
Now that you have a good idea if you are in the position for buying your first home, you can actually start looking at houses that are in your range.