With so much uncertainty in the world today, potential homebuyers are stuck wondering whether they should buy a house now or wait. Though we’ve all had a hard year, people aren’t letting that stop them from buying a home. First-time homebuyers currently make up 33 percent of all buyers, showing that buying a home is still a priority.
Deciding whether or not you’re ready to buy a home can be hard to determine. How much can I afford? Do I have enough saved for a down payment? Am I ready to settle down and make such a big commitment?
Here are a few tips that can help you prepare to buy your first home:
1. Start saving early
Getting ahead of savings and factoring in all costs associated with buying a home and becoming a homeowner will help set you up for a smooth journey. When determining how much to save, you’ll want to factor in these costs:
- Down payment: As a first-time homebuyer, you may be eligible to put as little as 3.5% down with an FHA loan.
- Closing costs: Closing costs usually account for 2 to 5 percent of the total loan amount. Saving for these costs are important when determining your savings budget. In some cases, you can get the seller to pay for your closing costs, but you always want to have these prepared just in case.
- Moving costs: Many first-time buyers fail to budget in moving expenses when saving for a home. Estimate any expenses such as paying for movers, home repairs or furniture costs. It’s always better to be overprepared with your finances than underprepared.
2. Pay down high interest debts
While having debts doesn’t disqualify you from getting a mortgage, it can be smart to try to pay down your existing debts before taking on a home loan. Work on paying down high interest debts first to save money on interest you would have been paying down the line. When getting approved for a mortgage, lenders will look at your debt-to-income ratio, which compares your monthly debts to your monthly income. Lowering your debts will lower your DTI ratio and help you get a better mortgage rate.
3. Get pre-qualified
Many first-time home buyers don’t think about getting pre-qualified before they start their home buying journey, and it’s a fairly simple process which can often be done online. When you get pre-qualified, you’ll get an estimate of how much house you would be able to afford, which can help you determine how much you should be saving before looking for homes.