Things You Should Do Before Buying a Home
Buying a home is the biggest purchase you’ll ever make and the decision to enter into homeownership can be overwhelming. You know that it is a large financial undertaking but you may be unsure how to get prepared.
Here are 5 things you should do before buying a home:
1- Save Money for a Down Payment & Closing Costs
Obviously buying a home costs money and although most people get a mortgage, there is a down payment that is required and closing costs associated with your mortgage loan. Speak with your mortgage professional to see how much of a down payment you will need and start setting the money aside.
2- Build a strong credit history
Every lender will access your credit report during the mortgage application process. Building up a strong credit history is definitely something you should do before buying a house. Your credit report serves as a picture of how you’ve handled repaying debt in the past. You need build a history that has timely payments over a variety of loans, such as revolving and installment loans.
3- Minimize debt
While building a strong credit history is important, you want to be sure that you don’t have too many debts while applying for a mortgage. The amount of debt you have directly affects your debt to income ratio and the mortgage amount you will be qualified for. A debt to income ratio is calculated by dividing your total monthly credit obligations by your total gross monthly income. Typically lenders want to see a debt to income ratio of 45% or less.
4- Have a stable employment history
Having stable employment is crucial while buying a home. Your employment history is a big factor on your mortgage application. Most lenders like to see 2 years of employment with the same field and preferably with the same employer. Having stable employment is also good for you as a borrower since it provides some financial security as you enter into homeownership.
5- Build up an emergency savings account
Being a homeowner comes with many costs and life’s little emergencies always seem to pop up. Inevitably you will have maintenance items around the house like replacing a water heater or fixing plumbing issues. A savings account also protects you if any unemployment situations were to arise. Having an emergency savings fund of about 6 months of household expenses can save you in times of need.
Buying a home is an exciting time but also one that comes with great responsibility. Follow the 5 recommendations of applying for a mortgage listed above. Having these items take care of will help you to get the best mortgage loan possible and the type of home you are looking for.