The time has come for you to make the jump to homeownership. Congratulations! Searching for a home can be a fun, if challenging, experience and one you should be ready for.
Here’s a quick guide to help you prepare yourself for homeownership.
Check your credit
Before you begin the process of purchasing a home, be sure to check your credit. A good credit score will benefit you with better rates and show lenders that you are financially responsible. You can order a free credit report every 12 months. If you see any errors, report them immediately.
Set a budget
Next, set a budget. How much can you realistically afford? Buying a home isn’t a cheap process. There are a lot of costs to consider before, during, and after you buy.
Costs to consider include:
- Paying your mortgage monthly – this is the repayment of your loan
- Property taxes
- Homeowner’s insurance
- HOA fees (if applicable)
- Mortgage insurance (if applicable)
- Home repairs and maintenance
Your debt-to-income ratio (DTI) should be considered when setting a budget. This percentage of your monthly gross income goes towards any debt repayment and is a way to measure your financial health. Think car payments and student loans. Lenders prefer your 43% – 45%, depending on your loan type. Many DTI calculators are available online, but to do it yourself, take your total debt figure and divide it by your gross income (income before taxes).
Save for a down payment and closing costs
Once you have a budget, it’s time to start saving for a down payment and closing costs if you haven’t already. Setting up a monthly automatic deposit into a savings account is a great way to save money each month easily. Traditionally, you should save at least 20% of the home’s purchase cost, but there are mortgage loans that allow you to pay at little as 3% down.
Ask your lender about your options.
Research your loan options
There are many different loan options, from conventional to jumbo. No matter your situation, your lender will help you determine the best loan for your needs. Documents you should give your lender include:
- 1 month of most recent pay stubs
- 2 years of W-2 forms
- 2 years of federal tax returns (in some cases)
- 2 months of bank, stock and retirement statements
When you have spoken to a lender and settled on the best loan, you will need to get pre-approved. Pre-approval shows sellers that you have the backing of a lender and are serious about buying. It also helps you stay within budget and manage your expectations when shopping for a home.
At o2 Mortgage, we believe that financial solutions should be tailored to your individual needs. We are here to help you obtain your dreams of homeownership!