How to Be Financially Prepared to Buy a House
There is no doubt that purchasing a property is a massive financial investment. Buying a home can be one of the most exhilarating – and stressful – moments of your life. So before you dive head first into the wonderful world of homeownership, be sure that you are fully equipped by following these steps. By being armed with the right information, you will be able to shop for a property, apply for a mortgage and close the deal with financial flair…
Strengthen Your Credit Score
The crucial thing about your credit score is that it can help lighten your burden immensely. This is because, the higher your credit score is, the lower your monthly payments will be. Hence, anything under 660-680, you will likely have to pay a higher down payment or some larger fees. On the other end, a score of 700-720 will increase your chances of landing a good deal, while 750+ will get you the best possible rates available.
If you want to improve your credit score, begin by taking out all your credit reports and make sure that you aren’t being unfairly penalized for old, paid or settled debts. In addition, do not apply for any new credit for at least a year before you apply for financing and ensure that you maintain the moratorium in place until the property deal has been closed.
Figure Out Your Budget
There are so many regulations that you can follow to get a better idea on how much you can afford to spend on a property. For example, if you are using FHA financing, then you must ensure that your home payment doesn’t go over 31% of your monthly income. However, with some mitigating factors, the FHA may let you go higher. Meanwhile, for the more typical loans, a good rule of thumb to go by is that the expenses of the home shouldn’t go over 28% of your gross monthly income.
If you want to improve your chances, begin by trying on that financial obligation way before you need to seal the deal and sign the mortgage papers. Hence, before you go shopping for a property, calculate how much the mortgage payment for your intended price range is – in addition with it’s increased expenses i.e. utilities, insurance and taxes. Following that, bank the difference between that and what you’re paying now.
Save For The Down Payment + Closing Costs
While it does depend on your credit and financing, you will most likely have to save enough cash for a down payment, which typically lies in the range somewhere between 3-20% of the property’s price. Another on the spot expense that you will have to bear in mind are the closing costs. Regardless of what your loan source is, you will need money to pay for closing costs.
In order to better prepare yourself financially when it comes to paying for the down payment and any associated closing costs, it is a good idea to bank your own cash and seek some assistance for your down payment. In addition, in a buyer’s market, you may also have to power to negotiate with the seller to pay a percentage of the closing costs.