Before you even begin searching for your ideal first home, it’s very important to make sure that you are financially prepared to take the plunge into homeownership; and it’s more than just saving for that down payment.
Here’s how you can be financially prepared going into your first home purchase.
How Much Can You Afford?
The first step to buying a home is figuring up how much house you can actually afford. Take a comprehensive look at your finances as well as the expenses needed to purchase a home. You’ll need to factor in your down payment, closing costs, monthly payment, homeowner’s insurance, costs for repairs and maintenance, and an emergency fund for the unexpected.
A rule of thumb that many use when determining their ideal housing price is keeping the monthly payment less than 30% of your monthly gross income. Going over this percentage could make it difficult to save or cover other monthly bills.
Figuring out how much your monthly payment needs to be is only the first step. The next is to start preparing yourself financially to purchase a home.
If your credit score isn’t up to par yet, you may have some trouble securing a loan. Take some time to increase your score before you begin searching for the right loan to save some money throughout your mortgage.
Schedule an appointment with CNE’s Homeownership Center to take a closer look at your credit score.
After your credit score is in order, it’s time to save for that down payment. Traditionally, down payments are around 20% of the total price of the home, but some loans can require as little as 3.5% down. Keep in mind that a lower down payment can mean private mortgage insurance or a higher interest rate, so it pays to put down as much as you can.
Gather Your Documents
Before mortgage shopping, it’s helpful to go ahead and gather all of the documents you’ll need to secure your loan. This includes:
- Two years of W-2s (or self-employed information)
- Two years worth of tax returns (both federal and income)
- Two of your most recent pay stubs
- Current checking account statement
- Current savings account statements
- Statements from any debt obligations you may have
These documents are only guidelines; your mortgage lender may require more or less, so it can pay to be prepared.
Did you know that CNE is also a mortgage lender? If you’re ready to take steps toward homeownership, we can help you prepare as well as lend you what you need for your home. Call our Homeownership Center today to get started! 423.756.6214