14 Jul How to Get Your Finances Ready for Your First Home
Our Tennessee mortgage lender team knows how important it is to have your finances in order before you buy a home. Having a healthy credit score and history can mean the difference between whether or not you’re able to qualify to buy the home you want. We have some tips to help you get started.
Are You Ready?
The most important thing that you need to determine is if you are really ready to take the plunge into homeownership. You need to be financially prepared to buy a home. There are costs to consider, such as repairs, utilities, taxes, and insurance. Buying and owning a home is a big financial responsibility, so you need to make sure your financial situation is stable.
What Can You Realistically Afford?
One of the biggest mistakes we’ve seen home buyers make is in not creating a budget to see what they can realistically and comfortably afford. They end up maxing out their budget to buy the home and then have little left for repairs or emergencies. This can cause a struggle when it comes to meeting their monthly mortgage payments.
Our best advice is to keep your monthly mortgage payments below 30% of your gross monthly income. Leave some breathing room in your budget for the unexpected and extra things that can come up, like repairs and fees.
Are Your Finances in Order?
Have you looked over your credit report recently? It’s definitely something that you should do several months to a year before buying a home. It gives you time to not only find and fix any errors on your report that are bringing your credit score down, but it also gives you a chance to see where your weak points may be. Paying down those high-interest rate credit cards can help raise your score quite a bit. The better your credit, the better your chance at qualifying for the loan amount you need. You may want to utilize some of the online mortgage calculators that are available on our website for free. It will give you a starting point to figure out just home much home you can afford.
Tip: To improve your credit score, pay your credit cards down to just about $50, and then, for a couple of months before you apply for your mortgage, just use them for something small, like a tank of gas or dinner one night – for something you can pay off easily while still keeping a low balance each month. In addition, don’t apply for any new lines of credit or make large purchases (car, boat, jewelry, etc.) before or during the mortgage approval process.
Have You Saved for the Down Payment?
Unless you qualify for down-payment assistance or a no-down-payment loan, you will need anywhere between 3.5% to 20% of a home’s purchase price as a down payment. It’s best to start saving for your down payment well in advance. The larger your down payment, the better the mortgage package you available to you. It’s also a good idea to keep your down-payment savings separate from the other expenses you will need to cover, such as closing costs and fees. This way, you won’t have to cut into your down-payment savings.
Tip: Put money aside for a home inspection. This is different from an appraisal and will give you a more detailed look at any potential issues with the house you are looking to buy, saving you money in the long term.
Get Your Paperwork in Order
Having all of your financial paperwork in order and on hand will save you a lot of hassle and time when it comes down to starting the mortgage process. Generally, you will need at least two months’ worth of bank statements, pay stubs, W-2 forms, and proof of income. If you are being gifted money for the down payment, you will need a letter drawn up from the person giving you the money that states it is a gift and not a loan to be paid back. Having everything ready beforehand cuts down on the time of having to gather paperwork, finding you are missing something, then having to wait while that is submitted.
If you are looking to buy a home soon and need some advice on how to get your finances in order, give our Tennessee mortgage lender team a call today at (615) 833-0456.