Buying a Home – Critical Steps First Time Home Buyers Must Undertake
Purchasing property is no simple task. For many, it would be their single biggest financial responsibility which would stretch over several years, so it’s important to be very critical of the houses they would be considering in order to arrive at the best decision that would give them the highest value for their money — not to mention the best home life possible. So it’s understandable (and expected) that you would want to go over every nook and cranny of the house that, preferably, is staged so you can have a good idea of how to furnish your new potential space.
Got your sights on buying a home in Sacramento? You’ve done the math and you and your partner think that you are ready to take that big step. Buying a home is by no means a simple process. On one hand, there are several steps that you need to undertake. And on the other hand, there are a lot of uncertainties that you have to be prepared for.
What are these steps that you need to undertake?
Check your credit score
Your credit score is one of the most important factors that potential lenders take into account when you are applying for a loan. How do you check your credit score? The simplest approach to this is to go online and request for a credit report. Some websites offer this service for free and without obligation. Once you receive your credit report, evaluate it carefully, looking for mistakes and unpaid balances.
Do take note that your credit score will not necessarily be good even if you pay your monthly dues promptly. Your credit utilization ratio or the amount of credit you use against the available credit limit also counts. If your utilization rate is low, you will have a high score.
If you have a low credit score, you will need to spend at least six months fixing that before you can buy a house.
Look at your assets and liabilities
The next important step you need to undertake before you buy a home is to carefully evaluate your assets and liabilities. Before shopping for a loan, you should have a fair idea of your monthly cash flow. In order to do that, you have to observe and track your income as well as your expenditure for a few months. It also helps to have a basic understanding of mortgage lending so you will be able to see your cash flow from the perspective of lenders.
If you are self-employed or a salesperson who earns through commissions, you may have to track back by at least two years and show your earning history.
Prepare your financial documents
Which documents will you need when applying for a mortgage? Generally, lenders will ask for two of your latest pay stubs, W-2 for two years, your tax returns, and two months’ worth of bank statements.
Determine how much you can afford
If you haven’t determined yet how much you can afford as a home buyer, now is the best time to do that. In determining how much you can truly afford, you need to calculate your debt to income ratio and then factor in the down payment. This will give you a fair idea of how much you can afford to pay upfront and on a monthly basis.
Traditionally, lenders want borrowers to spare at least 28 percent of their monthly income for housing costs. But apart from that percentage, lenders would also like borrowers to have 36 percent (or higher) earmarked for monthly payments.
As a full service Real Estate Firm in Sacramento, we are here to help guide you through the process. When the time comes that you are ready to buy a home we will work with you from start to keys in your hand.