How Should I Prepare to Buy My First Home?

How Should I Prepare to Buy My First Home?

How Should I Prepare to Buy My First Home?

Check your credit

Consider running a credit check to see where you stand. This could give you a chance to correct any mistakes in your credit report and take steps to raise your credit score, if you have a few months. A higher credit score may qualify you for a lower interest rate. Conventional home loans typically require a credit score of at least 620.

Calculate how much you can afford

Calculate your monthly income; then add up your monthly expenses, including payments for car loans, student loans and credit card balances. Add in estimated expenses for a new home (mortgage, utilities, taxes, insurance). Consider using an online mortgage calculator to estimate a monthly mortgage payment you can afford.

Save for a down payment and closing costs

Home loans can require as little as 3 percent down or as much as 20 percent down. You’ll also need money for closing costs — which average about 3 percent to 4 percent of the price of the loan, or $6,000 to $8,000 on a $200,000 mortgage. Evaluate your cash reserves and plan to save more if needed.

Get a mortgage preapproval

A mortgage preapproval is a good-faith estimate from a mortgage lender that you will qualify for a specific loan amount. To apply, you’ll need to present financial documents requested by the lender, which could include your Social Security number, pay stubs and tax returns. Sellers may prefer offers from buyers who are preapproved.

Research the housing market

Find out how much homes sell for in your area. Learn about school districts, crime and local taxes. Pinpoint neighborhoods with amenities that are important to you, such as walkability, proximity to parks, recreation or schools, and accessibility to your job.

Find a good real estate agent

Look for a real estate agent who really knows your local market, has deep knowledge of values in different neighborhoods and has the negotiating skills to make the buying process work for you. Get referrals from friends and family who own homes. An agent can help with everything from finding a home to making an offer and is usually paid on commission, which vary, but average about 5 percent to 6 percent, according to some online sources.

Ground yourself in the home-buying process

Once you’ve found a home you like and made an offer the seller has accepted, you face a rapid-fire series of steps to actually buy your home, including a home inspection, the appraisal and getting approved for a loan. Learning about the process beforehand can make everything go more smoothly.

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