If you’re considering purchasing your first home, chances are you may not know exactly what to do and where to start. Don’t worry – you’re not alone. You might think the first step is checking out properties in your desired neighborhood, but that actually doesn’t come until later.
Until you know where your finances stand, it’s going to be difficult to accurately gauge if buying a home is a realistic option for you right now, let alone how much home you can afford. Check out the financial tips below before you decide to take the plunge as a first time homebuyer.
Know your credit
A homebuyer’s credit score is one of the most important factors when it comes to qualifying for a loan these days. In addition, the standards are higher in terms of what score you need and how it affects the cost of the loan.
You may think because you pay your bills on time your credit is stellar, but that’s not always the case. The amount of credit you’re using compared to your available credit limit, also called a credit utilization ratio, can lower your credit score. The lower your utilization rate, the higher your score will be. Ideally, first-time homebuyers would have a lot of credit available, with less than a third of it used.
Repairing damaged credit takes time and money. If you think your credit may need work, begin the repair process at least 6 months before shopping for a home.
Know what you can afford
There’s nothing worse than falling in love with a house, only to find out there’s no way you could actually afford it. For this reason, we recommend getting pre-approved for a mortgage, or at the very least, pre-qualified. This process gives you an accurate amount which you can afford to pay for a home. Some lenders will tell you that you prequalify for a loan based on the income and credit information you have provided, whereas with preapproval, the lender will verify your income documentation and not just check your credit.
Have more questions? Contact the pros at Metrowest – our experienced pros have the answers you’re looking for and would love to help you become a homeowner!