Shopping for your first home is exciting, and it is only natural to want to get right to it. The idea of trading in that monthly rent check for a mortgage payment that builds equity and wealth for the future is certainly compelling, but there are some key things first time home buyers should do before they start driving around and looking at properties.
Buying your first home is a major commitment, and a big life change. Owning a home and renting are two very different things, and you need to make sure that you are well prepared before you call a real estate agent. Here are five things every first time home buyer should do before they start shopping for the property of their dreams.
1. Assess the Financial Situation
Before you start shopping, you need to set your price range, and that means taking a hard look at your finances. Pull out all your financial documentation - from your bank statements and brokerage records to retirement savings and your emergency fund information. Knowing where you stand financially will make it easier to set a realistic price point, one with an affordable monthly mortgage that will not leave you feeling stretched.
2. Pay Down Debt
If your financial analysis reveals high levels of debt, now is the time to pay it down. High levels of credit card debt and other high interest payments can lower your credit score and make getting a home loan that much harder.
Paying down your debt now will raise your credit score and make you a more attractive borrower, but it will also make your mortgage payment more affordable. If you cannot afford to pay off the entire debt, pay it down as much as possible.
3. Think About Job Stability
As a first time home buyer, your ability to make the monthly mortgage payments is tied directly to the steadiness of your income. In most cases that means the stability of your job, and your employer.
Before you go house shopping, you need to take a realistic look at your job situation. Is the company you work for profitable, with positive cash flow and accelerating earnings? Is the industry you work in growing or shrinking? Is your own job stable, and do you have a positive relationship with your boss? The answers to these questions will tell you a lot about whether you are ready to make the leap from renter to homeowner (and mortgage holder).
4. Budget for Ancillary Expenses
Many first time home buyers are surprised at just how much it costs to own their own home. They budgeted for the monthly mortgage payment but not for the cost of repairing a leaky toilet or replacing a failed refrigerator or washing machine. The ancillary costs of owning a home are nothing to sneeze at, and it is important to factor them into the home buying equation.
From the cost of furnishing your new home to ongoing repairs and maintenance, there are a lot of expenses that go with owning a home. Budgeting for those ancillary expenses may lower your price point somewhat, but knowing you can afford all the costs of homeownership will give you extra peace of mind.
5. Check Credit Scores
Your credit score will play a big role in everything from your interest rate to whether you qualify for a mortgage at all. If you have not already done so, now is the time to check your credit score.
If your credit score is in the upper echelon of the numerical range, you can rest assured that the mortgage qualification process will be a breeze. If your credit score could use some help, finding out early will give you time to raise it. From paying down debt to making every payment on time, the actions you take today could give you a better credit score tomorrow.
Buying a home is a major commitment, one that demands the right preparation. Taking the time to carefully prepare and go through the steps listed above can make everything that follows, from qualifying for a mortgage to making an offer, a lot less stressful.