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Ready. Set. Home. How to Prepare to Buy a Home
It is never easy to plan a purchase of a home. Whether you are a first-time home buyer, or onto your 3rd home, there are a number of factors to consider when starting the process of purchasing of a home. Below are a few simple steps to help you get started:
1. Review your current income and expenses.
It is important to review your income and expenses before buying a home. On one level, you want to have an idea of what is comfortable (see step 2). On another level, you want to find out what you can qualify for.
To understand your qualification level, lenders use a ratio called, “debt-to-income”. This is basically taking your monthly debt payments (e.g. credit cards, vehicle loans, student loans, potential mortgage payment with taxes and insurance, etc.) by your gross monthly income.
Total monthly debt payments of $1,000 / Gross monthly income of $2,500 = 40%
Guidelines change, but the normal target debt-income ratio for lenders is around 40%.
2. Create an estimated budget.
Regardless if you are buying a home, or figuring out your financial future, it is important to create a budget. For first-time home buyers, it helps with making sure they understand the financial responsibility and burden of buying a home.
Note: When you are adding your home payment, don’t forget to include your mortgage payment (principal, interest, insurance and taxes), and ongoing home maintenance. Experts suggest budgeting 1 to 2 percent of your home’s value each year for the home maintenance. To calculate your principal and interest payment, click here.
3. Down payment.
One part of determining what you can afford is figuring out how much is required for a down payment. If you are first-time home buyer, you may want to see what sort of programs allow for a minimal down payment. For example, FHA loans may require as little as 3 percent down, while VA or USDA loans have no down payment requirement.
Note: If you put less than 20 percent down, you’ll have to pay mortgage insurance every month until you have 20 percent equity in your home. Premiums can be 0.5 to 1 percent of your mortgage amount per year. This can change, as well.
4. Get pre-qualified.
It’s important to go through the pre-qualification process. It helps streamline the process of getting a home loan, figuring out what you can qualify for, and understand what mortgage programs that that fit into your personal budget and circumstance. To start your pre-qualification process, click here.
5. Find a Realtor.
Once you figure out what you can qualify for, then start interviewing realtors. You can also start looking at homes based on specific search criteria on this website.
The process of buying a home is undoubtedly stressful given it’s one of the biggest assets that a person will acquire in their lifetime. However, with the proper planning and guidance, it can become one of the smartest decisions you make.
To start your online application, click here.
For more information, please contact us at (503) 747-6534 or email us . (Jason Gong – NMLS# 302914)