Buying your first home is both exciting and challenging. Because purchasing a home is such a significant financial commitment, it’s important to be prepared and to know what you are getting yourself into. If you are ready to buy your first house, you should make sure you are financially prepared. Here are a few tips on how to do that.
Understand the home buying process
For most people, buying a home is one of the most significant transactions they make in their lives. A lot of work goes into closing a real estate deal. Beyond shopping for the perfect home, there are a lot of financial factors that will determine whether or not you can secure the home. From qualifying for mortgage financing to entering real estate escrow, those working through the home buying process need to be aware of their finances to make a safe purchase that’s within their means. Take the time to research the real estate transaction process and seek guidance from a mortgage lender or real estate agent.
Related: What is an Escrow Account and How It Works in Real Estate
Check your credit score
One of the most critical factors in whether you qualify for a mortgage and what interest rate you get is the status of your credit score. If you have a good credit score, then you will be eligible for the best interest rate. If your credit score isn’t so high, you might wind up with a higher rate, which can cost you tens of thousands of dollars over the life of the loan. Here’s the good news—a credit score can be built up over time with the right strategies.
Related: How Can Millennials Build Credit?
Get preapproved for a mortgage
Getting a mortgage pre-approval does not guarantee you a home loan, but it does go a long way to helping ensure that will happen, and it also can give you a good idea of what you can afford. A mortgage pre-approval also can help you in the buying process, because sellers will be more likely to accept your offer if they feel confident you can actually complete the closing process.
Related: 3 Tips for Finding the Best Home Loan Lender
Determine how much house you can afford
While a mortgage pre-approval can give you an idea of how much house you can afford to finance, you also have to determine if what the bank thinks you can afford is what you feel comfortable paying. Keep in mind that the bank’s estimate for a monthly payment may only include principal and interest, and you still have to account for property taxes and home insurance. You also have to think about ongoing and one-time maintenance costs, which can cost as much as 1 to 2% of the price of your home annually.
Related: 5 Things You Need to Be Pre-Approved For a Mortgage
Make sure you have a down payment
It’s important to be able to make a down payment on your home. Not only does this show the bank that you are willing to put some skin in the game, it also can lower your monthly payments. The more money you put down up front, the less you will have to pay in mortgage insurance payments.
Related: How to Save for a House Down Payment
Following these tips will help to ensure you are financially prepared to buy a home. Buying a home is expensive, and you want to do all you can to make sure you get a good deal.
