First Hurdle to Home Ownership
No matter if you are expecting a new addition to your family, need more space for the toys strewn all over (how amazing would an actual family room be!), or just want to move to a new neighborhood and school district—the thought of undertaking the home buying process can be a little daunting, especially for first time home buyers. The biggest and first hurdle (anyone else excited for the Olympics?!) you should clear is talking to a lender! I can’t stress this point enough, even if you don’t want to buy for another twelve months or more, go in and talk to a lender today. It’s free and relatively pain-less. Talking to a lender will help clear up many things:
- Do’s & don’ts until you buy:The lender will tell you how to keep your credit score from being adversely affected until you are ready to purchase—don’t open a new credit card, don’t close an old credit card, etc.
- Credit check:Anything in your credit history that you are unaware of (you would be surprised how often this happens) will come to light and by checking your credit early, you have the time to fix it before you are ready to buy.
- Pre-approval:The lender will run your credit, ask for additional documentation (W2s for the past two years, paystubs, bank statements, etc), walk through your different options, and let you know your pre-approval amount.
- Loan types:FHA, VA, conventional, Fannie Mae HomePath, etc—the lender will go through the pro’s and con’s (for example only certain condos are FHA approved, some loans have higher interest rates but lower private mortgage insurance, buy down points, and more) of each loan and help determine which loan is right for you and your situation.
- Estimated monthly payments:An estimate of your monthly payment will be given at your pre-approval amount, taking into account principal, interest, taxes, and insurance (piti).
- Decide how much you want to spend:There is a big difference between what you are pre-approved for and what you want to spend, so make sure to sit down and go through your family’s financial situation. Do you like to go on trips every year? Are there daycare expenses that will be rising soon? Are there any other potential costs that will affect how much you want to spend a month? You don’t want quality of life to go down because your monthly payments are too high (or get in over your head).
- Have a buffer:Just in case anything happens, it’s important to have money saved beyond the down payment and closing costs.
After you have taken this first step and talked to a lender, you can start deciding on what you are looking for in a home and begin the actual house hunt!