Buy Your First House – 8 Essential Steps
Some people say that you need to have the perfect credit, some people say that you need to save first, some people say that you cannot buy your first house because you don’t even have a job, or that maybe you do have a job, but you haven’t been there long enough.
What exactly is it that you need in order to make yourself lendable and make the banks truly want to lend you money so that you could finally buy your first house? If you’re looking for answers, you came to the right place.
People are looking to buy homes, whether with assistance or not, what is it that you need to get yourself together, and in order so that people don’t reject you or the lenders don’t send you away because maybe you’re not lendable? We are going to talk about eight efficient tips that you can definitely follow in order to make yourself look irresistible for your lenders.
1. Get your taxes in order.
Preferably for the past two years. Why? Because the banks need to see how much money you’re making. They have to verify that you’re in fact telling the truth. If you’re saying that you’re making, for example, $50,000 a year, they need to see evidence that you’re making, in fact, $50,000 a year. That’s why you do it through your taxes.
Another reason why you need to get your taxes in order if you want to buy your first house is because the amount of money they’re going to lend you will be based on that tax return.
If your tax return is reporting that you make $50,000 a year, they will lend you money based on this $50,000, and the way they do it is that they will base it on three or four times your income. So the range that you could be qualifying for could range somewhere between $150,000 to $200,000.
2. Be aware of your budget.
What is your budget? In the previous example, It’s $50.000 and $200.000. That means that if you make $50,000, then you can qualify for somewhere between $150,000 to $200,000. If you make $60,000 a year, then you take $60,000. You multiply that by three, or you multiply that by four, and that should give you a decent range and approximation of how much you can actually afford.
3. Search for first-time homebuyers programs.
The Department of Housing and Urban Development collaborates with families who want to buy a house for the first time
Depending on the state that you live, you will get multiple links from different websites, but for the most part, what you’re going to do is you’re going to find something that comes from hud.org, which in essence, will lead you to the famous FHA mortgages.
Those are the mortgages that require you to do only 3% to 5% as a downpayment. It’s typically created for first-time homebuyers, but also it is meant to help people from low income qualify for that opportunity to be able to afford their primary home.
4. Determine how much money you need.
That will depend on the type of mortgages that you qualify for. If you do qualify for an FHA, and the house that you saw costs $100,000. That means that with 5% you will only need to put down $5,000. That’s not so bad.
Let’s assume you do qualify for a conventional mortgage, and a conventional mortgage can range somewhere between 20% to 25%, which means that we’re going to use the higher end of it that you will need to put down $25,000 as down payment.
That will give you a sense of how much money you need to set aside, whether it’s your savings or maybe you can borrow from an uncle or sister or brother or your parents or whatever, but at least it gives you an understanding of how much money you need. In addition to that, you should also consider closing costs. Closing costs are usually 3% to 5% of the purchase price of the house, and that means that it could translate somewhere to $3,000 to $5,000.
5. Work on your credit – Buy Your First House
Particularly on your FICO score. Why is it so important? If you’re looking for financing and you have a bad credit score, you won’t qualify for any mortgages, no one is going to lend you. Or if you find a lender to give you money in spite of your lowest credit score, chances are that that loan, that mortgage, is going to be a very high-interest mortgage. A second purpose for having good credit it’s getting good rates.
6. Get a copy of your credit score or your credit report.
Fulfilling the paperwork at the bank to apply for the mortgage is one of the most important steps in buying your home
In order to access your credit report, you will go to a website that’s called experian.com. You’re going to create an account in experian.com, so you can check your FICO score, you can monitor it, and once you get to that perfect point, to the ideal point that you know you’re going to qualify for good rates, you’re going to make a copy of that credit report, and you’re going to go to the bank and start shopping for rates.
You’re going to bring them your credit report and you can ask them to get an approximation as to how much you can qualify for and what are the rates that they’re going to give you. Once you get multiple rates from different banks, then you’re going to find the one that suits you.
7. Select the right bank that you want to work with.
This will be the bank that you’re going to provide all documentation that they require, collect the taxes, copies of your employment letter, copies of your address, driver’s license, whatever is it that they request, you give it to them. Once you go through the entire qualification process, what they’re going to do is give you something that is called the pre-approval letter. This letter serves multiple purposes:
- It’s going to help your realtor scan you. The first question a professional realtor will ask of you is, “Hey, do you have a pre-approval letter?
- Second, typically, you have a better bargaining power if you do have a pre-approval letter. That means that if the seller sees it, it’s going to give you preference in comparison to other offers. Why? Because the seller knows that by having a pre-approval letter, that means you can close faster than other people who are interested in the house.
8. Look at houses – Buy Your First House
What happens when you start looking for houses without following a process is that you could fall in love with the house but maybe you don’t qualify for the house, and then you get disappointed. Or maybe you can afford that house, or maybe you do get approved for that house, but it might not be the right house for you because it’s too expensive, and you might not be able to keep up with the mortgage
That’s why you always start out with your taxes, you start out with your budget, because that will give you the right amount as to how much housing can you truly afford without having to be house-poor. That way, you can still go out and enjoy some time with your friends, go to the movies, have fun, and then come back to a place that you can call home without feeling that you’re throwing your money away.
If you don’t qualify for a lot of money, that’s not the end of the world. You can just continue saving money, or you can just simply buy a smaller house and then save up for another one. Things change, circumstances change, but what’s important here is that you’re doing it the right way, and that’s by doing the proper budgeting so that you don’t wind up in a very difficult situation that you might regret.
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