Looking To Buy A Home In The Next Few Years? Here’s 5 Things To Start Doing Now
If you’re looking to buy your first home in the next 5 years or so, you’ll likely need to start now to ensure you’re in the proper financial shape to do so. Here are five things you’ll need to do:
1. Improve Your Credit Score
A lot of first-time homebuyers are holding off on buying in hopes they can get a better rate once they improve their credit scores, and that’s smart. While you don’t need top-tier credit to get a mortgage, an improved credit score can not only help you get approved quickly for a mortgage loan, it can also make better interest rates available to you.
Most conventional lenders look for a credit score of at least 640, but a credit score of 620 is often a common credit score benchmark for government-backed loans (like the Federal Housing Administration, U.S. Department of Veterans Affairs and the U.S. Department of Agriculture).
If your score is subpar, and even if it isn’t (everyone’s credit can be improved), you can start improving your credit scores by first determining where you currently stand. It’s also a good idea to pull your credit reports. Be sure to review it closely for any errors or discrepancies and then dispute any items that are inaccurate.
2. Find Out What Can You Afford
Getting pre-approved for a loan can help you determine how much mortgage you can qualify for, but that doesn’t necessarily mean that’s what you can afford. That’s because lenders look at your credit, income, debts and assets, but don’t take into account your own personal spending and savings habits.
When it comes to your income, lenders prefer that you’ve worked in the same or similar field for at least 2 years. If that’s not your case, it’s a good idea to explain your situation in writing, and be sure to include any employment gaps. Lenders also have to show that your income supports your mortgage and any other debt payments. If those debts exceed 45% of your income, you might not qualify for as much house as you might like.
Once you know how much you can comfortably afford and what kind of mortgage you can qualify for, you’ll have a better idea of how much you’ll need for a down payment.
3. Save Your Down Payment & Closing Costs
The bottom line with a down payment is the more you can put down, the less you’ll have to borrow, so your minimum monthly payments will be lower. Also if you have only a very small downpayment (5% or less, for example), you’ll qualify for fewer types of mortgages and could also be charged a higher interest rate.
While most lenders would like to see a 20% down payment, some mortgages are available for as little as 3% down. And then there are the closing costs, the fees paid at the closing of a real estate transaction, when the title to the property is transferred to the buyer. They typically range between 2-5% of the purchase price.
Whether you’re able to save for your down payment and closing costs can be a good indicator of whether you’re ready to own a home. If you can’t save enough for a 3-5% down payment, are you really ready for the financial responsibilities of owning a home? Will you be prepared when the furnace breaks or when the dishwasher needs to be replaced? There are a lot of expenses, big and small, that come with owning a home, not just the down payment, mortgage and closing costs.
4. Have an Emergency Fund
You’ll want to be prepared for unexpected emergencies in your new home, and that means having enough savings to cover some of the big expenses. Sure there are home warranties and homeowners insurance to cover some things, but say, for example, a huge rain storm causes your new home to flood and you don’t have flood insurance. You’re going to be stuck with the costs of cleaning up the damage, remediating any mold or mildew issues, replacing sheetrock, mouldings and flooring — not an inexpensive experience.
Having a savings account with at least several months income in it can ensure you have peace of mind and a solid cushion should things go wrong.
5. Find a Great Realtor
Having a knowledgeable Real Estate Agent who understands your market, knows the neighborhoods, and has great connections with inspectors and contractors is going to be immensely helpful in your search.
Go ahead and look at homes now so you can get to know the market a bit better, even though it may seem like the house of your dreams is going to get away if you don’t go buy right here and right now. Your Agent can make a big difference in finding the right home and having a smooth closing. NestQuest Direct is here for you all of your needs. Click here to learn more.
via MSN | Lead image: © Hero Images/Getty Images