You would like to buy your first home but don’t know where to start? Here are five things you can start working on:
- Establish good credit – You can open a credit card and use it for small purchases you can afford to pay off at the end of the cycle. Or, get a secured credit card at your bank. With this type of credit card, you deposit your own money and only charge up to that amount. You can also ask someone with good credit to add you as an authorized user on one of their credit cards— but, most importantly, pay on time and do not max your cards (tip: use no more than 30% of your credit limit).
- Prepare to afford a house – As a general rule, your total housing expenses should not be more than 28% of your gross monthly income; and ALL monthly debt (including housing expenses) should not exceed 36% of your gross monthly income. Housing expenses include, the monthly principal and interest, property tax, homeowner’s insurance, and homeowner’s association (if applicable).
- Save, save, save – Down payments can be as low as 3%. In addition, you will have closing costs of around 2-3%. For example, if the price is $500,000, your down payment could be as low as $15,000 and your closing costs between $10,000-$15,000. You could potentially need around $30,000. You can also receive gifts to help with these costs and, depending on your credit, you may qualify for other down payment assistance programs. However, keep in mind that the higher your down payment, the lower your monthly mortgage payment will be.
- Crate an emergency fund – Have a separate account with funds you will not use unless it’s for unplanned expenses or other major emergencies. Ideally, this would be three to six months your monthly expenses.
- Plan a budget – Budget when you are saving to buy your house and when you buy your house. A budget will help you track bills and pay on time. Also, keep in mind that when you own a house you also have additional utility and maintenance expenses.
Buying a home for the first time can be scary. You might not know where to start. This is why it is so important that you work with a real estate professional who will guide you through the process. When you are ready to buy, get in touch with a real estate agent. They will refer you to someone who can pre-approve your loan and will get you started on your home search.