If you’re planning to buy your first home in the next year or so, you should know up front that it can be a stressful experience. It is one of the biggest investments that you will make in your life and that alone is enough to escalate one’s stress levels.
We’ve prepared tips for buyers to help make the process easier and less stressful.
1. Decide whether you really want to buy – Purchasing a home is the biggest financial decision you will ever make. Make sure you are fully ready to buy. Ask yourself these questions:
- Are you tired of paying rent?
- Have you decided to pay your own mortgage and not your landlord’s?
- Have you outgrown your current home?
- Are you looking for an investment portfolio?
- Are you looking for a rental property?
- Would you like a larger yard?
- Would you rather live in a different area?
- Do you want to shorten your commute?
- Having a clear sense of your reasons for buying will help you choose the right property
Answering these questions will give you a WHY (your purpose…everybody has one)!
2. Get a free copy of your credit report from annual credit report– Consumers are entitled to one free credit report from each of the three major credit reporting agencies EACH YEAR. Once you have your report, review it carefully for errors. If you find errors or discrepancies on your report, start clearing them up right away. Inaccurate info on your report should be reported to a credit reporting agency and the creditor directly. You can also file a dispute with the credit reporting agency for free.
3. What can you afford? – You should plan to spend between 25 percent and 33 percent of your gross monthly income on just your housing expenses, depending on how conservative you want to be with your finances. Comparatively, mortgage lenders generally agree you can pay between 28 percent and 36 percent of your gross income in total debt. Speaking with a mortgage broker is the best way to confirm how much house you can afford.
4. Set a savings goal – Once you know what you can afford, take a hard look at your current lifestyle and determine how much you need to save—and where you can make some cuts. Reducing unnecessary daily expenses, like buying gourmet coffee or eating meals out, can turn into big savings each month.
5. Educate yourself on the current lending market and collect all the information you need to present to a lender – As you prepare for your big purchase, work on getting all of your documentation together so you are ready to apply for your home loan. Keep all of your documents in one safe and secure place You’ll find current copies of lending guidelines online for Freddie Mac, Fannie Mae and the Federal Housing Administration.
Gather and organize all of the documents your lender will need:
- W2 forms
- Copies of completed federal tax forms for the last two years
- Copies of one month’s worth of pay stubs
- Copies of the last two or three bank statements for every bank account, IRA, 401(k), or other retirement or brokerage account you may have
By preparing now for your home purchase, you can avoid the hassles that come with buying a home.
(We’ll have a few more blogs about organization and tips that we use to stay organized and stress free during home buying process, including our Milestone Manager Planner)