When it comes to buying a home, it’s essential to get your financial ducks in a row.
There are many steps in the homebuying process that first-time buyers need to be aware of, but one of the most important steps is to get your finances in order. Getting your financial ducks in a row can save you from many heartaches and lots of stress throughout the entire process, but if you’ve never bought a house before, this step can be easier said than done. Luckily, the experienced mortgage brokers at Berkshire Hathaway are here to help. Here is our list of tips to help you financially prepare yourself for buying a home:
#1. Check your credit score.
A good credit score can make all of the difference when buying your first home, so the first thing you should do to get your financial ducks in a row is to figure out what your credit score is. You can check your credit score for free every year with the three main credit bureaus by visiting AnnualCreditReport.com.
#2. Build your credit.
Once you know what your credit score is, it’s time to work on getting it to the optimal level to buy a home. The credit score you’ll need will depend on the kind of loan you’re applying for. For example, if you plan to apply for an FHA loan, you’ll need a credit score of at least 580. However, the higher your score, the better the interest rates you’ll get, so even if you meet the minimum requirement for a loan, building your credit is still a smart way to prepare your finances for buying a home.
#3. Save up for a down payment, closing costs, etc.
Unless you are planning to take out a VA loan or take advantage of down payment assistance, you’ll probably need some sort of down payment when you buy a home. Determining which kind of loan you want to apply for will help you determine how much of a down payment you’ll need to save up. You should also save up for closing costs, earnest money, the inspection and all of the other expenses associated with buying a home at this time.
#4. Build a housing emergency savings account.
When you own a home, you are the one who is responsible for calling a plumber when the pipes burst or calling in a roofer after a hailstorm, all of which can really add up. When preparing your finances to buy a home, it’s also important to prepare your finances to become a homeowner, which means having some savings to cover emergencies in your home, like a broken water heater or roofing damage.
#5. Put any major purchases on hold.
When you’re preparing to buy a home, it’s not the time to invest in a fancy new TV or a convertible. It’s the time to put the brakes on borrowing for a while and focus on saving your money. It’s also the time to focus on making payments on time and lowering your debt-to-income ratio.
#6. Figure out how much you can actually afford.
You should never rely solely on how much your mortgage broker or lender tells you that you can afford. It’s also essential to note that you should never start shopping for a house without knowing how much mortgage you are pre-qualified for. Once you are pre-qualified for a mortgage, sit down and determine exactly how much house you can afford, taking everything from the monthly mortgage payment to property taxes and all of the other expenses that come with being a homeowner.
We hope these tips help you financially prepare for the homebuying process. Are you ready to get pre-qualified for your new home? Contact us today to get started!