You’ve made the decision: you’re going to buy your first home. Purchasing your first home is equally exciting and nerve-wracking. You don’t know what to expect and you’re not sure you can get around the learning curve. Here are five things to keep in mind.
1. Check your credit score. The very first thing you want to do is know how your credit score will impact your purchase of a new home. It’s possible to get a free credit score and report once a year, so this should be the first thing you do. Make sure there aren’t any mistakes on your report (if there are, report them), then, if necessary, create a plan to repair your credit. Decide if you want to move forward with purchasing a home or if you want to take a few months to improve your credit score.
2. Save for cost of closing. Prepare for what you’ll have to pay in closing costs. You probably already know that you’ll have to put some money down for a down payment, but you may not have considered the additional costs you’ll have to budget for, like closing costs. You may end up paying up to 5% of your loan amount in closing costs alone. Closing costs include home inspections, homeowner’s insurance, and title searches. Sometimes, the seller will pay part of the closing costs, or you can negotiate how much your real estate agent will make in commission in order to offset the cost a bit.
3. Narrow your property options. Figure out what type of property you want to buy. Looking into mobile homes for sale is quite a bit different than looking at townhouses or mansions. Knowing what you’re in the market for will help you narrow down your options and budget accordingly. It’s just as important to know what you don’t want as to know what you do want.
4. Gather necessary documents. Make sure your financial documents are in order. When applying for a mortgage, you’ll need to show proof of income as well as your tax information. You’ll need pay stubs, tax returns and bank statements. Gathering these documents ahead of time will make the entire process run more smoothly. This is also a good opportunity to assess your cash flow – you may think you have less or more than you actually have.
5. Get pre-approved for a loan. Getting a pre-approval letter will give you a rough idea of how much you could get from a lender. This is different than being prequalified, which is a looser estimate based on your income as well as your debt. For a pre-approval, the lender conducts a more thorough evaluation of your finances to give you a better idea of how much you can get. You’ll also get an idea of the terms that come with the loan.
Your new home may be the biggest purchase you ever make. The process can be complicated and full of hidden fees and surprise costs. Knowing what to expect ahead of time will make the process as streamlined and understandable as possible.