Owning your first property is a great accomplishment! It is one of the best feelings to walk away on closing day with the keys in your hand to your lovely new home. Bah bye, slumlord landlord. Whether it is a condominium, townhouse, or single-family/investment house, your blood, sweat, and tears to achieve this enormous feat would have been well worth it. However, buying your first home is no easy feat. There is much preparation for it, and you must get your mind right and stay focused.
First and foremost, you have to decide if the timing is right because it is a huge step. It is a grueling process and a journey so you must be prepared. See the deets below for a checklist on how to prepare to be a homeowner.
Job stability is important
If you do not have all the cash up front to buy your house, you will most likely need to take out a loan that you will pay back in monthly installments, which is called your mortgage. One of the most important criteria for obtaining a loan for a mortgage job stability. Therefore, the time of employment at your company matters. To be considered for a mortgage, you should have been at your job for at least two years consecutively. Banking is a business, and if they are loaning you money, they want to make sure that you can pay the loan back and their rule of two years stability is a good indicator that you are trustworthy. If you have switched jobs, it is ok, but they would prefer you not to have flopped around from industry to industry. If you have stayed within the same industry, they favor that if not, it does not totally count you out. Talk to a lender and see if they can work something out. So, is your stability in check?
Figure Out How Much Home you Can Afford
This is a vast aspect of home ownership. Besides the stability factor that the mortgage lender is hoping for you should feel secure that the current job you have is secure and that your salary is enough to sustain the amount of house, you can afford. For example, if you make $50K a year, your goal should be to buy a home for no more than $125,000. The rule of thumb is that you take your annual salary and times it by 2.5 and that is your median average of home you can afford. There are tons of calculators online to figure it out, and you can always walk into your local bank and ask to speak to a home buying specialist, and they will assist you as well. You do not want to be house poor which is buying a home only to pay all the bills concerned with the home, and you cannot do anything else. This happened to me when I brought my first property. I did not realize how much went into owning a home, and there were bills out the kazoo that was different from when you are renting like the oil bill or additional commuting fees. Trust me, staying within your budget and buying what is affordable would serve you well.
Credit Score is Queen
Ladies, what is your credit looking like? Hopefully, you have a decent credit score because most lenders beeline it to your credit score first because this affects your interest rate for a mortgage. Your interest rate matters because this number affects how much you are paying monthly for your loan. The goal is to get a low rate of something like 4%-5%, but that depends on your score. Usually, the higher your credit score, the lower your interest rate will be, which gives you a lower monthly payment! #goals. Your credit score is calculated by the FICO (Fair Isaac Corporation) method which gives you a score which is based on items like credit debt, debt to income ratio, employment history, and your credit repayment history. Research has shown that a score of 700 is good to apply for a mortgage. Scores range from 300-850. If you have an 850-credit score that is golden! If you don’t and get close to it, that is great as well. However, you do not want to walk in a bank having a score of 350 because that will get you nowhere but back in your momma’s house. Check out the list of credit scores and their values:
Average Credit Score Range:
300-579-Bad Credit Score/Very Poor
620-679 –Poor credit score
680-739-Average credit score
750-800-Great credit score
760-840-Excellent credit score
850 –Perfect credit score!
Wheeeew! So, what is your score? If you do not know how to obtain your score, all you should do is contact the three major Credit Bureaus and get your credit report and score. They are Equifax, Transunion, and Experian. Google them and go to their websites and fill out the application. The credit reports are free within the year for the first time you applied, and you may have to pay extra for your score. You can also go on sites like Credit Karma to obtain your score as well, and they are beneficial.
Here is a tip: Want to save some money? You can get an FHA loan which is a first-time buyers home loan that is very helpful because with this type of loan you don’t have to put much money down for your down payment. The great thing about this loan is that they accept lower credit scores in the range of 580. Conventional loans which most people get they go as low as 620 credit score but do not forget the higher your score, the better your interest rate. The best way to secure a great score is to pay down your debt and stay within the debt to income ratio of 30% — more on this below.
Get Rid of your Debt
Debt will weigh you down like crazy, and this is something you do not need or want when applying for a mortgage. Banks frown upon credit card debt because it screams you do not know how to manage your money! It also affects your credit score, which then affects your interest rate. If they believe that you have too much debt, they may not give you the loan in fear of you defaulting the loan. Banks, unfortunately, judge you on your credit card debt as it is the worst revolving debts that you can have. School loans and car loans are taken into consideration as well but not like credit card debt. Banks are more lenient with school loans and car loans, but they will consider how many monthly payments you make to them to figure out how much of a loan you truly can afford.
Therefore, if you have a lot of credit card debt, your best bet is to make sure that your debt is paid off before applying. There is a rule for managing your credit debt, and that is called the debt to income ratio which means that within your total debt budget you should have no more than 30% of the debt owed compared to your total available credit. For example, let’s take one credit card, and you have an available credit of $1350, and you take 30% of that which is $450. Your balance owed should be no more than $450. When you go over that 30% threshold, you are looking like a risk. You appear to be a person who does not know how to manage their money, and that is a red flag to a lender. So, get your credit card debts down as much as you can and under that 30% threshold. You will have to change your lifestyle, focus and make sure that your desire to own a home is more important than that your desire to party or charge a trip or buy excess things that are not needed because sacrifice is vital. You need to employ serious discipline and self-control to get out of your debt hole so you can attain your dream of home ownership. Get rid of the debt girlfriend.
Save Up for your Down Payment
If you were accepted for a bank loan congratulations! However, you are not done yet. You will need some heavy mullah baby to facilitate the closing of your house, which is called the down payment. Individual loans will require you to have a set amount of a down payment according to the bank. Remember, when I mentioned the two main loans that people usually get? The FHA loan and the conventional loan? Most FHA loans only require you to put down 35% of your house payment so if your house of your dreams costs $150,000 with this loan you only must save and have ready for closing day, $5,250. Sounds divine, right? Ahhhh yes indeed. Now if you have a conventional loan you would have to put down $120,000 you would have to have at closing day, a whopping $24,000. Whatever way you decide to go, you are going to have to save and save to be prepared. Therefore, it is a good idea to plan at least two years before when you are planning to buy a home. This set time will give you ample time to pay off debt and be able to save for a down payment. If you don’t have credit card debt than that cuts the time for you! You can take a few months to get it together.
Home ownership is very possible, and all you must do is know that this is really want you want to do and see if the time is right for you. Also, don’t let anyone scare you out of home ownership. You can buy your own house, and you do not need to be married to be a homeowner. You can be single and buy your first home you just must smart about it. If you are married and want to buy a home that’s good too and then you have two incomes to fall back on. With financial management and making someone serious lifestyle changes, you will be able to make this leap. Just imagine having these keys in your hand closing day, isn’t that vision beautiful? Focus and determination will lead you to your dreams of owning your first home. Do not fret; you got this!