2. Prepare Finances
HOW MUCH HOUSE CAN YOU AFFORD?
Mortgage lenders recommend you do not buy a home that is more than 3 to 5 times your annual household income. If you are not purchasing a home with cash, you will need a mortgage pre-approval provided by your mortgage lender. A lender will work with you to get a loan that meets your needs. Some buyers are concerned with keeping their monthly payments as low as possible, others want to make sure that their monthly payments never increase.
CHECK YOUR CREDIT
A mortgage requires a good credit score. You can improve your score by:
- Paying down credit card balances
- Continuing to make payments on time
- Avoid applying for a new credit card or car loan until you have been approved
- Avoid making big purchases until you have been approved
- If possible, avoid job changes until you have been approved
SAVE FUNDS FOR A DOWN PAYMENT & OTHER EXPENSES
In order to make your dream of buying a home a reality, you will need to save funds for your down payment, earnest money, closing costs & home inspector.
- A Down Payment is typically between 3.5% & 20% of the purchase price
- Earnest Money is money you put down to show you’re serious about purchasing a home. It’s also known as a good faith deposit. Typically runs anywhere between $500 and 1% of your purchase price.
- Closing Costs for the buyer run between 2% & 5% of the loan amount
- A Home Inspection costs $300 to $500
3. Get Pre-approved
Being pre-approved, unlike being pre-qualified, means you've actually been approved by a lender for a specific loan amount. You will need to provide documented financial information (income, statements, assets, debt & credit reports etc.) to be reviewed & verified by the lender.