Getting Ready to Buy Your First Home

Getting Ready to Buy Your First Home

mortgage-loans-canadaEvery new homeowner is on a budget. The biggest hurdle is to figure out what your budget should be. The best way to do this is to talk to a mortgage lender.  But before you decide to start moving ahead with buying the home of your dreams, here are a few things you should know.

 

Get Ready

Gather your financial data including pay stubs, bank statements and tax returns; and visit a local lender to get pre-qualified for a loan. They will examine your documentation and look at your credit report to determine your debt-to-income ratio and tell you what type of loan and what dollar amount you are eligible for. You can also complete this step online – be sure to enter accurate information or you will simply be fooling yourself.

 

Remember, being pre-qualified does not guarantee the lender will give you a mortgage, it simply means that based on the information you provided, they are estimating what loan you are eligible for and at what terms. Usually, your debt-to-income ratio cannot be more than 50% of your gross monthly income and a potential mortgage payment cannot be more than 30% of your gross monthly income.

 

The mortgage lender will provide you with a pre-qualification letter that tells you how much of a down payment you need as well as the total amount the lender determines you can afford to pay for a house.

 

Be sure to ask the lender to estimate closing costs for a home of the price they are pre-qualifying you for, so you can add that to your down payment requirements.

Once you have a pre-qualification letter, knock about 20% off of the total and start your home search in that price range. This assures you that you will have the money you need to be a homeowner – money for unexpected repairs and maintenance – and help keep you from overspending on a property because it’s just a few thousand more.

 

A good realtor will be happy to help you look in the lower price range since they know you will be able to make a serious offer when you find the perfect house. Don’t let your emotions sway you – stay within the maximum dollar amount you have predetermined or be prepared to walk away.

 

Have a wish list and prioritize it. If you want a large yard and you want convenience to downtown, you may have to give up one or the other. Determine what you “must” have and what is simply wanted.

 

Rules of Thumb

There are some good general rules to follow in order for your home to be a financial investment.

 

Only buy if you are going to stay in the area for a more than a few years. If you move frequently, you’ll lose money in closing cost alone and could potentially lose in the basic cost of the home.

Pay attention to school districts even if you have no school-age children or expect to. Good schools are extremely important to many home buyers.

Research neighborhood and area crime rates. This is another area that is important for resell value.

Curb appeal makes a difference. The most beautiful home inside will be hard to sell if it is ugly or weird looking from the street. If it’s a matter of landscaping and you love to garden, go for it. If it is structurally unattractive, walk away.

 

George Gallagher is a writer working in the financial sector at cuStudentLoans, he enjoys helping students learn the best ways to manage their finances and student loans. In his free time, George enjoys a good game of beach volleyball and hiking.