Buying a home is a significant and exciting decision. Especially for a first time home buyer who has lots of questions in their mind of what could go wrong and right. Finding the right real estate agent can make you a savvy consumer and improve your overall experience.
Take these five steps to help make the process go smoother.
CHECK YOUR CREDIT
Checking on your credit is also what we call credit analysis. It is the process of evaluating an applicant's loan request or a corporation's debt issue in order to determine the likelihood that the borrower will live up to his/her obligations.
The home buyer's credit score is among the most important factors when it comes to qualifying for a loan these days.
The lower the utilization rate, the higher your score will be. Ideally, first-time homebuyers would have a lot of credit available, with less than a third of it used.
Repairing damaged credit takes time -- and money, if you owe more than lenders would prefer to see relative to your income. If you think your credit may need work, begin the repair process at least six months before shopping for a home.
EVALUATE ASSETS AND LIABILITIES
As you start to prepare for those inevitable home expenses, you’ll want to first evaluate what your monthly budget looks like today. By performing a cash flow analysis that breaks down your take-home income, monthly savings, and your fixed and variable expenses, you can identify areas where you can cut costs and bolster your savings.
According to Winesburg, the self-employed or independent contractor will need a solid two years' earnings history to show.
Paper documents can be overwhelming, and it can be difficult to tell which of these you might need to be keep and which might want to toss away. By sorting your paperwork, making a plan of attack, and using a consistent system, you can conquer that mountain of old paper documents in less time than you might have thought. Especially when applying for mortgages. Home buyers must document income and taxes.
Buying a new home should be exciting but it should also provide you with a sense of stability and financial security. Living month to month, with barely enough income to meet all of your obligations, the threat of foreclosure looming if you slip up—well that’s the wrong kind of excitement. That’s why it’s so important that you know ahead of time the answer to that very important question, How much house can I afford?
FIGURE OUT YOUR DOWNPAYMENT
Another key number in determining the answer to How much house can I afford? is your down payment. The larger the down payment; the larger the house, right? Well, yes, but before you go and empty out your savings account, keep in mind that lenders generally want you to have a cash reserve remaining after you’ve moved in. Why? Having some money in the bank after you buy is a great way to help ensure that you don’t find yourself worrying about the two dirty words in homeownership: default and foreclosure. The question isn’t just Can I afford a house? It’s Can I afford a house and still have some money left over as a buffer?
While maintaining a debt-to-income ratio under 36% protects you from minor changes in your finances, a cash reserve protects against major ones. At a minimum, it’s a good idea to be able to make three months’ worth of housing payments out of your reserve, but something like six months would be even better. That way, if you experience a loss of income and need to find a new job, or if you decide to sell your house, you have plenty of time to do so without missing any payments (and, in turn, wrecking your credit).
Source: Smart Asset