So you made the decision to buy a home!
For many people, buying their own home is the biggest investment of their lives. First home owners in particular will find the process of buying a home thrilling, daunting and nerve-wracking. With such a steep learning curve, it is not easy to know what to expect. However, a lot of the uncertainty, drama and roadblocks can be avoided by doing some financial research.
Here are 5 tips to ensure a smooth transaction:
1. Assess your liabilities and assets
In addition to making sure that your payments are up to date and you are not too deep in debt, you also need to make sure that your spending is in order. First home owners need to have a proper idea of what comes in and what is owed. Financial experts recommend that you track your spending for a few months to understand your spending. Since most of you will be going through a mortgage lender, it is best to have an idea of how lenders view your income.
2. Keep your credit in check
3. Assess yourself
As a first time home buyer, you should know how much you can afford to spend before your lender tells you the amount for which you qualify. In order to figure this out, you need to calculate the debt to income ratio and to factor in your down payment. This way, you will know how much you can afford monthly and upfront. According to financial experts, you need to aim for about 28% of your monthly income to go towards housing costs.
4. Know how much you have to pay upfront
Paying a reasonable down payment is important to make sure that you don’t end up owing too much each month. You may need to contact a few lenders to figure this out. Ideally, you should not make it too large (so much that you can’t afford it) or to make it too small (so that your monthly payments eat up your income). Once you know how much you can spend each month and your down payment, you can determine the ideal price range for your home.
5. Keep your documents in order
Your documents need to be in perfect order to avoid unnecessary delays or getting disqualified by your lender. Typically, your lender will need pay stubs, tax returns and bank statements for the last 2 years. This is why financial experts recommend that you start your research and organisation at least 6 months before buying a home. This gives you plenty of time to get your documents in order and to learn more about the process to better prepare yourself.
Buying a home for the first time doesn’t have to be a painful process. Take the time to prepare yourself by doing your research and understanding your best option.