So you think you are ready to buy a home! Congratulations! Now what?
Here are 5 steps you can take to start preparing to buy a home, wether it is your first or your fifth, you will need to get your ducks in a row!
STEP 1:
Pay down your debt and clean up your credit. When getting a mortgage your lender will be looking at your debt to income ratio. That means they will divide your monthly debt payments by your gross monthly income to come up with a percentage. According to the Consumer Financial Protection Bureau your debt to income ratio should be under 43% to qualify for a mortgage. Paying down debt will help to lower your debt to income ratio. To calculate go to Nerd Wallet here.
It is also important to check your credit score and clean up any issues that you can. The higher your credit score, the better you will be prepared to. apply for a mortgage. Check your credit score at Credit Karma.
STEP 2:
Save money! You will need to come up with some cash when you are purchasing a home. Once you talk to a lender you will have a better idea of what you will need. As of right now the minimum down payment for an FHA mortgage is 3.5% of the purchase price and 5% for a conventional loan. You will also need cash for closing costs. While these costs vary, plan to pay 2% of the purchase price in closing costs. So, if you are buying a house for $300,000 you will need $15000 for a down payment with a conventional loan plus $6000 in closing costs. You will also need to tuck away some money for moving expenses, utility deposits and any items you wish to change in the property before you move in.
STEP 3:
Talk to a lender and set a budget. A good lender is your ally and partner through the entire process. That process starts with what you can afford and what it will cost you. Taking a good look at how this new budget is super important! Even if your lender says you can afford a certain price does not mean you should spend that much. You have to look at what is comfortable with your lifestyle and budget!
STEP 4:
Talk to your Real Estate Agent and do market research. Once you know what you can afford you. can start doing the research on the market. Especially if your budget is tight, flexibility in your friend. This is a good time to see what is actually out there in your price range in your area. If you would like to download my free app to start your market research you can click here.
STEP 5:
Gather your paperwork! Your lender will give you a full list of everything you will need for the loan process. In the meantime, here are some of the basic documents to gather:
Tax returns for the last 2 years
Proof of Income including W2 and pay stubs
Bank Statements
Credit History
Gift Letters
Photo ID
Rental History
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