How Do I Prepare to Buy My First Home

You’ve made the decision that life would be better in a house of your own. It’s now time to make sure that all of your ducks are in a row. While preparing to buy a home may feel like an intimidating task, more than 7 million people purchase homes every year. 

The reality is that you have many professionals and experts helping you along the path to making your purchase. While those professionals can help you to take the right steps to homeownership for a clean and easy closing, nobody other than you can do the preparation work needed to get in gear to make an offer. 

Let’s cover the steps you need to take right now to prepare to buy your first home!

Work on That Down Payment

While the days of being required to put down 20 percent are long gone, you should strive for a down payment that’s as large as possible. In addition to showing lenders that you’re serious, a healthy down payment helps to reduce your monthly mortgage costs. It’s a big reason why most owners pay less than renters per month. 

If you can reach 20 percent, you’ll be in the lucky group that gets to avoid paying private mortgage insurance (PMI). If you’re going for an FHA loan, you’re only required to put down 3.5 percent. 

Most conventional mortgages require 3 percent to 5 percent. Buyers going for VA and USDA loans don’t actually have to put down any down payments. Don’t forget to pad whatever you manage to save for a down payment with a little extra to cover closing costs. Typically, that means between 2 percent and 5 percent of your loan amount. 

Get Familiar With Your Credit Score

If you can shout out your credit score right now, you’re already ahead of the game. The first step to getting a realistic idea of how much “house” you’ll be approved for is simply knowing where your credit score stands. You can also take some steps to clean up your credit score to get in a zone where better loan terms and interest rates are available. 

First, get your free credit reports from Experian, TransUnion, and Equifax. Make sure to scan your reports for any errors that could be harming your score. If creditors have incorrectly reported activity on your report, you’ll be able to dispute their claims. Keep in mind that you’ll need a credit score of at least 580 if you’re going for an FHA loan with a down payment of just 3.5 percent. Most conventional loans require scores of at least 680. 

While you may be approved for loans with these scores, you’ll get better rates if you can boost your score. A lower interest rate means that you’ll pay less over the life of your mortgage loan! 

Determine Your Buying Budget

It helps to go in with the right expectations about what you can afford based on your financial picture. While “wishing” is nice, the reality is that lenders use strict formulas to determine how much they’ll lend out to buyers. 

One of the easiest ways to find out how much you’ll be approved for before you make the leap to actually getting a preapproval is to figure out your debt-to-income (DTI) ratio. 

Your buying power is actually higher if your debt is lower. Lenders like to see a DTI that’s 35 percent or lower. They also don’t like to see more than 28 percent of your monthly expenses going toward your rent/mortgage payment. That means you’ll need to look at homes in a price range that allows you to keep your DTI in check.

Don’t know how much how you can afford on your current budget? Here’s how to find out!

The Final Stretch: Assemble Your Helpers

Once you have a pretty good idea that you’re ready to buy, it’s time to get professionals in your orbit that can make your dream a reality. First, shop around for lenders. This means looking at interest rates offered by large lenders, credit unions, and local banks to see where you’re getting the best terms. 

Next, get your preapproval to get a concrete loan amount you can use to start making offers. Of course, you’ll need an agent in your corner before you can start making those offers. 

Once you have your agent, you’ll be able to see the inventory that’s available based on the price range, home features, and neighborhoods that you’ve narrowed down on your must-have list. It’s only a matter of time before the stars are going to align to put you in the right spot to make an offer with help from your agent!

Are You Preparing to Buy Your First Home in Arizona?

At Stevens Realty, we’re excited to help first-time buyers enjoy a seamless, positive experience! With the market changing so rapidly, insights from established pros right here in Arizona have never been more essential. Keith and Janna are ready to help you find your way through this process to find a home that fits your budget. Reach out today to begin a journey that will lead you!