Whether you’re trying to buy your first home or the third, the home buying process can feel overwhelming. It can be filled with tough decisions that can take up time and energy. Sometimes you don’t even know where to start—that’s why we’re here to help. Let’s take it step by step and see what you need to know about the home buying process.
Are You Financially Ready?
The first step in buying a new home is deciding if the time is right for you financially. When you buy a home, lenders consider your debt-to-income ratio. Your debt-to-income ratio is a percentage of your income that goes towards paying off debt. In addition to this ratio, lenders also review your credit score.
If you have large amounts of debt and/or a low credit score, it might be beneficial to pay off that debt and start improving your credit score before considering buying a home. By doing this, you improve your chances of getting a lower monthly payment.
Once you have determined that your debt and credit score are where you want them to be, it’s time to determine what type of home is in your budget. When considering the cost of your home, is there a specific down payment you want to put down upfront? Start there and figure out the best way to budget and get the house that aligns with your financial goals.
Get Pre-Approved
One of the ways you can identify what type of home you can afford is by getting pre-approved. Pre-approvals serve a variety of purposes, both allowing you to understand what home you can afford, but also establishing you as a qualified buyer to the seller of the home.
What Will Your Down Payment Look Like?
Once you have taken a look at your finances, and determined what home you can afford, it’s important to decide on a down payment that works best for you. The more money you put toward your down payment upfront, the lower your monthly payment will be.
The larger your down payment, the less your interest will be. Traditionally, most people consider 20 percent of the total price of the home a good down payment to aim for. While it is beneficial to put down a larger amount, certain programs will only require a certain amount for a down payment. If you aren’t able to put down a large down payment, there are still ways that you can get a home loan. Your mortgage lender can help you identify first-time homebuyer programs or tell you how much to put down to find a monthly payment that works for you.
Start Saving Now
There is never a wrong time to start saving for a down payment. If you finalize your decision and home buying is looking right for you, start putting away more money to put down on that future home. There is also more to save up for than just the down payment such as closing costs, moving expenses and extra payments you might make during this busy time.
If you haven’t already started paying toward your debt, you can allocate a certain amount of your income to paying off debt, while setting aside money for your home. Take a look at your monthly expenses and see if there is any way you can adjust your spending. Reducing unnecessary monthly expenses will give you more money to set aside for your home and get your debt under control.
One way to save money efficiently is by opening up a savings account that earns dividends, like a Meritrust Money Market account. You can start automating the amount you want to be set aside for both convenience and to avoid the temptation to spend it.
Explore Your Options
Utilizing a real estate agent will help you navigate the house search, negotiate and manage your timeline. Once you have an agent that you like and have gotten pre-approved, start your house-hunting search. You may know what type of house fits with your budget, but at this point, it’s time to find out which house will be your future home.
Pay attention to things such as location, amenities in the home, the layout of the home and other factors that will affect your day-to-day life. Use your realtor to help sort through homes in your desired area and find homes that fit your criteria.
