Have you recently made the decision to become a first time home buyer? While it is difficult to know exactly what to expect, there are several steps you can take to help you decide if this is the right choice for you.
Checking Your Credit
When it comes to qualifying for a home loan, your credit score may be the most important factor. A credit score will show how much money you owe, how often you use credit, and if you pay your bills on time. When lenders look at your credit report, they look for the four C’s: credit history (paying your bills on time), capital (money available for a down payment), capacity (your income vs. debt), and collateral (condition and value of the house). Even if you pay all of your bills on time every month, this does not mean that you have great credit. What can negatively affect your credit score is the amount of credit you’re using relative to your available credit limit. If you are in a situation where you need to repair damaged credit, be sure to start the process at least six months before shopping for a house.
Before buying a home, it is important to find out what your total monthly housing costs will be. This should include taxes and your homeowners insurance. In some areas, what you’ll end up paying for your taxes and insurance escrow can almost double your mortgage payment. An easy way to get an idea of what you’ll pay for insurance would be to pick a home in an area where you’d want to live in and call a local insurance agent for an estimate. While you’re not obligated to buy the insurance, you will get a good idea of what it’ll cost if you decide to buy the home.
It is important to not overlook what you’ll pay in closing costs. Closing costs will include origination fees charged by the lender, title and settlement fees, taxes and prepaid items such as homeowners insurance and homeowners association fees. To see what closing costs usually average in your state, you can go to www.bankrate.com and check their annual closing cost survey.
The neighborhood you live in should matter just as much as the home itself. Be sure to research schools, property tax rates, crime statistics and insurance rates. You’ll also want to check your commute to work, along with the distance to restaurants, grocery stores and shopping centers. And there are several things that first-timers do not think about, like yard tools (including that new lawnmower), ongoing repair costs and even the need for more furnishings.
Becoming a homeowner for the first time is a very big step, and there is a lot to consider when deciding whether or not you are ready. Following the steps above will help give you a better idea on if the time is right to buy a home.