In the following article, we share our easy-to-use checklist to make the process as smooth as possible. Let’s begin!
Handle the Outstanding Debts That You Can
The first thing you should cross off your homebuyer checklist is any high-interest debt that you’re capable of paying off before the application process begins. Debt affects credit utilization. The more you’ve borrowed against your limit, the less that creditors feel you’ll be able to afford.
Look for some of the easiest wins starting. If you can lower your debts without cutting too much into your downpayment, then reporting bureaus will be more apt to provide lenders with a favorable score.
Learn About Preapproval and Begin the Process
The preapproval process is essential before you can start home negotiations. You have to grant permission for the lender to do a “hard pull” on your account. This will ultimately determine how much home you can afford based on your downpayment.
Save for a Downpayment Whenever Possible
To qualify for more affordable housing, it helps to have some cash on hand for the downpayment. Some recommend 20 percent of the purchase price so that, if you’re buying a $100,000 home, you put $20,000 down ahead of the purchase and finance the remaining $80,000.
This can be difficult to do, but it keeps you from having to carry mortgage insurance. Anything you can offer below the 20 percent is a good idea and will certainly help out, but it will still result in the insurance add-on.
Consider Other Expenses When Calculating How Much Home You Can Buy
Especially when buying older homes, homeowners have to make considerations about additional expenses they might run into as they close the deal. Ensuring everything from obvious repairs to upgrading glass for energy efficiency is on the table.
You should also factor in about 1-3 percent of the home purchase price when figuring out how much house you can truly afford. On that $100,000 home, that’s between $1,000-$3,000 annually (or $83-$250 a month).
Think About Length of the Mortgage
Another thing you will need to settle on during the mortgage preapproval process is how long you wish to finance the mortgage amount on your home. The most common terms are 15 and 30 years.
With a 15-year mortgage, expect a higher monthly payment but to pay less in interest. Thirty-year mortgages are more affordable from month to month, but you’ll end up paying a higher rate and a higher amount over time.
Cross T’s and Dot I’s
The final thing to consider when it comes to homeownership is to make sure you’ve handled and understood all the little details. Things like the following:
- The party that handles closing costs
- What the closing costs are
- The paperwork has been signed and initialed by all parties
- Understanding who pays for the appraisal and any other associated fees
- The agreed-upon price
Ensure no devils are hiding in the details. Then, you can proceed.
The First-Time Homebuyer Experience Can Be Hard at First
Becoming a first-time homebuyer might seem overwhelming, but the reality is that you can do this! That’s provided you make a checklist, or take the one we’ve offered here, with you.
Know what you can afford, put yourself into a good position with your credit rating and downpayment, and pay attention to the details. For more real estate tips and information, check out some of our additional posts!