How To Prepare for Homeownership
Homeownership is a huge step, and a home is likely to be the largest purchase you will ever make in your life. First time home buyers can take some steps in advance to make sure their transition from renter to homeowner goes smoothly.
Anyone considering making a large purchase, especially a new home, should first get copies of their free annual credit report and obtain a credit score. Review your credit report, make sure that everything is accurate, and look at your credit score. Knowing your score will help you discover which interest rate you are likely to receive, as the best mortgage interest rates are generally reserved for those with credit scores over a pre-established number (anywhere from 700 to 770 depending on the lender). If your score is low, you may consider fixing your credit before purchasing a home.
Once you are satisfied with your credit report and score, evaluate how much money you can realistically spend on your new home. To do this, you’ll need to take a good look at your personal finances, determining how much you will have for a down payment, and how much you are able to afford for a monthly payment. Once you have that information, you can find out how much house you can realistically purchase. Keep in mind that there are some hidden costs to homeownership that you’ll need to factor in.
Next, organize your financial information so that you’ll be able to get your mortgage fully approved when the time comes. Most mortgage companies will want to see your prior year tax returns or W2s, latest pay stubs, and statements for your savings, including your 401(k). Keep all of this information readily available, perhaps in a mortgage folder, so that it will be easily accessible when the time comes.
Finally, before you find your dream home, you’ll want to find a mortgage lender to work with. Ask co-workers, friends, and family members for their recommendations, and if you have time, talk to a few to find out which lenders offer the best rates. Some mortgage brokers offer special programs for first time homeowners. After you find the best mortgage broker for your situation, ask about being preapproved before you make an offer to buy a home. Preapproval is the best way to feel confident you’ll get the home you want, once your offer is approved.