Buying a house for the first time can be gratifying. It can be thrilling. It can be life-changing. But it can also be scary. Want to make sure the process goes as smoothly as it can? Get your finances in order with these helpful home-buying tips.
Know What You Can Afford
Home ownership is a dream for many people, but when pursued carelessly can end up leaving you “house poor.” That’s when such a large percentage of your income goes towards your mortgage, utilities, and home maintenance that it leaves you struggling to afford anything else.
Before you even start looking at houses, it’s important to know what you can afford, not just in terms of an immediate down payment, but on a long-term basis. Remember to take into account all costs associated with home ownership, including closing costs.
Fair warning: some homeowners use a seller closing costs calculator ahead of time and increase their sales price accordingly to maximize their profit, which could result in you paying for more house than you actually get.
Manage Your Debts & Credit
Pop quiz: What are the two things that most significantly impact a prospective buyer’s ability to get a mortgage loan? The answer: their debts and credit score. No lender wants to risk providing financial resources to someone who can’t pay them back, so they always do their homework.
Debts that can affect your chances of receiving a mortgage include student loans, car payments, and more. The general rule of thumb is that if a mortgage added to your current debts would eat more than half of your regular income, it represents too great a risk for lenders.
Even if you don’t have any outstanding debts, it’s worth checking your credit score to see your current standing and to correct any errors, such as incorrect payment dates or closed accounts being listed as open.
A common mistake that too many overeager home buyers make is accepting the first loan offer that they’re offered. If your credit is in good standing, your chances of landing an affordable mortgage is greatly improved. You can improve your chances even more, though, by casting a wider net.
Different lenders have different standards and interest rates, so it’s a good idea to comparison-shop as much as you reasonably can. Find a loan that works for your lifestyle, goals, and income level. Signing a loan agreement that you’re not fully prepared for could leave you in a bad situation later on.
Protip: don’t be afraid to let lenders know that you’re shopping around. If you like one lender more than the others, for instance, but have received better offers elsewhere, let that lender know what their competitors are doing. They may be willing to improve their own loan terms.