Buying your first home will be a memorable and exciting experience. Getting to the point that you qualify may take some serious work. Your ability to save as well as you payment history on other debts will all be called into question.
Calculate Your Income
Determine your monthly income. As a rule, the majority of this will come from your job, but you may have investment property or a family trust that is putting money in your bank account. Be aware that lenders may not be able to consider any monies that you make from side hustles, as that income varies from month to month. Child support and alimony may also fall out of consideration. If you’re working with a lender who knows you, there may be flexibility on what can be counted.
Determine Your Monthly Debt
Sit down and tally up your regular monthly payments, including car payments, student loan debt, and rent. If you have credit card debt, including the minimum payment due each month. You’re not hiding anything by only listing the minimum; your credit check will provide potential lenders with that data. If possible, pay down credit cards to reduce the risk of facing difficult mortgage solutions once you get settled.
Request a Free Credit Check
Get a pdf of your credit report and carefully review it. Be aware that lenders that you’ve paid off may still show up on your report and you may need to do some work to get them off your credit history. For example, if you had a loan of any sort that included your social security number in the application process, and if that number had any errors in it, that debt may still show up on your credit report as unresolved, because the incorrect SSN means that all of the data can’t be reconciled. Taking care of false negatives on your credit rating can be one of the first and simplest mortgage solutions to getting your loan.
Determine the Mortgage Payment You Can Afford
If you can afford your rent, you can probably afford a similar mortgage payment. First-time borrowers must be very careful about this. If you have good credit and some savings, you may find that you are pre-qualified for much more house than you feel you can comfortably afford. Stick with the lower number and don’t overreach on the amount of debt you take on.
Make applications at couple of lenders so you have a ballpark of how much house you can afford. Make sure that these credit requests are soft pulls, so they don’t impact your current credit rating. Once you’re pre-qualified and have a basic understanding of the homes available in your price range, check into programs to help first mortgage down payments for first-time buyers. You may be able to find help for your down payment or for renovations if you find a fixer-upper.
Don’t Go DIY Crazy
It can be tempting to buy a cheap house that needs a lot of work. However, unless you’ve done a lot of that work, you may find yourself trying to move into an unlivable house. There’s nothing wrong with doing some updates to get things just how you want them, but if you need to move walls or make big, radical changes to electrical and plumbing, leave it for your second house.
Save, Save, Save
The bigger your down payment, the more house you can afford. Even if you don’t have to use your down payment dollar in the actual purchase of your home, extra cash is always a boost once you move in. Before you move, cut back in every way you can. Go back to cash for groceries. Don’t stock up on any products you’re going to have to move later. As you pack up, sell things you don’t want. Make sure your first mortgage is manageable so you can build equity.
Buying your first home will not be easy, but it will get your foot in the door. Look for a home in which you can build equity. If possible, get a 15 year mortgage so more money goes against the principal from the first payment.