You’re ready to buy your first home. Congratulations! Homeownership is a huge milestone but also a big financial commitment—so much so that it costs more than $350,000 to own a home in the United States. Before you dive in headfirst, there are a few things you should know that they don’t teach you in school. Here are some things they don’t tell you about buying homes.
Your credit score matters
Most people know that their credit score impacts their ability to borrow money — but many don’t realize that your credit score also plays a role in major life purchases, such as buying a home. In fact, your credit score is one of the key factors that lenders will consider when determining whether to approve your mortgage application.
A higher credit score tells lenders that you’re a low-risk borrower, which means you’ll surely repay your loan on time. Conversely, a lower credit score may signal to lenders that you’re a high-risk borrower. As a result, you may have difficulty obtaining a loan or be offered less favorable terms.
So, if you’re considering buying a home, it’s important to check your credit score and take steps to improve your rating if necessary. Doing so can increase your chances of getting approved for a mortgage and securing the best possible interest rate.
Pay attention to your debt-to-income ratio
One of the most important things to pay attention to when buying a home is your debt-to-income ratio. This is the percentage of your monthly income that is deducted from debt payment, and it’s a critical factor in determining how much house you can afford.
A higher debt-to-income ratio means you’ll have less money for other expenses. Hence, keeping this number in mind when budgeting for your new home is essential. Different ways to lower your debt-to-income ratio include paying off existing debts and increasing your income.
If you’re unsure where to start, speak with a financial advisor who can help you create a plan. Remember: a healthy debt-to-income ratio is essential for creating a sound financial future.
You’ll need to save up for a down payment
When you’re ready to buy a home, you’ll need to have saved up for a down payment. This is the money you’ll put towards purchasing your home, typically around 10% of the home’s total cost.
Of course, this depends on the lender you’re partnered with, so make sure you choose a good home loan lender. A good lender will work with you to make the home buying process as smooth and stress-free as possible. They can do this by helping you understand the home buying process and getting pre-approved for a mortgage. Depending on your income and current debts, they can also guide you on what type of house you can afford.
Besides that, know plenty of ways to save up for a down payment. One option is to open a savings account specifically for your down payment and contribute to it regularly. Another option is to take advantage of any employer-matching programs available to you. And finally, if you have any extra money left over when the month ends, consider putting it towards your down payment to reach your goal even faster.
With a bit of planning and commitment, saving up for a down payment on a home can be easy and stress-free.
Don’t forget about closing costs
One of the most important things to remember when buying a home is to factor in closing costs. These fees are connected with the home-buying process’s final stages, and they can add up quickly. In addition to the down payment, you’ll need to budget for things like appraisal fees, loan origination fees, and title insurance.
The good news is that many of these costs are tax-deductible, so be sure to talk to your accountant about how to maximize your savings. Additionally, many lenders offer programs that can help you cover closing costs. So don’t let the fees scare you away from buying your dream home – with some planning, you can make it happen.
You may not be able to move immediately—be prepared for a long close.
Actually purchasing a home can be quite complicated, and it’s important to be prepared for every eventuality. One thing that you may not anticipate is a long close. Sometimes, it can take months to finalize the purchase of a new home. This is often due to factors beyond your control, such as the financing process or the seller’s schedule.
However, there are also steps that you can take to minimize the chances of a long close. For example, working with an experienced real estate agent familiar with the area can help ensure everything goes smoothly. Ultimately, being prepared for a long close will help to make the home buying process less stressful.
Buying a home is a substantial financial commitment but can also be very rewarding. Remember that your credit score matters, pay attention to your debt-to-income ratio, save up for a down payment, and don’t forget closing costs. Keep these things in mind as you begin the process of becoming a homeowner, and you’ll be one step closer to making your dream come true.