Buying your first home is a big step! There’s nothing quite like stepping out of the world of renting and into the world of homeownership. But there’s also a lot to learn and have ready before you begin the actual process. So, before you take the leap, here are five tips to help you have your financial ducks in a row.
Thinking about purchasing a home can quickly become overwhelming. That’s why we’re giving you five simple steps to get you started.
At Popular Community Bank, we’re here to help you reach your financial goals.
1. Know your credit score (and take the time to fix it if you need to)
Credit scores are calculated by three major agencies: Experian, TransUnion, and Equifax. Your score is based on factors such as the length of your credit history (how long your credit cards have been open and your recent activity), your historic ability to repay debt, and your amount of available credit.
When you’re applying for a mortgage, your credit score is one of the factors that help determine the interest rate you will be offered; the higher your credit score, the lower your rate can be. It’s a good idea to review both your credit report and score before applying for a mortgage. Under the Fair Credit Reporting Act (FCRA), you can request a free copy of your credit report from each of the three reporting agencies once every 12 months
2. Have a good sense of your budget
Most people are actually surprised when they take the time to put down on paper how much money is coming in each month versus how much is going out. Sure, you’re aware of the big things—the car payment, the college loan payment, the phone bills—but when is the last time you considered how much you’re spending on things like eating out, Netflix, iTunes, or transportation? Now is the time.
Make a spreadsheet with all of the bills and outgoing expenses you can think of so you have a clear picture of your monthly cash flow. If what you find is news to you, don’t worry—this is the perfect time to reassess spending habits and start redirecting money into savings or paying down debts.
3. Be realistic about what you can afford
Once you have a clear picture of your budget, you can start to determine how much you can really afford. You also don’t want to forget to factor in property taxes and home insurance costs. (We have a handy tool that can help.)
While it’s generally a good idea to be able to put down 20 percent of the purchase price to avoid mortgage insurance, you also want to ensure that you still have savings in the bank. Not only are there costs that can come up during the buying process, there are certainly things that will come up once you own a home. And if you can’t afford to put that 20 percent down, there are still plenty of options to get you into your first home.
4. Prepare for a lot of paperwork
When it comes to applying for a mortgage and buying a house, there is no shortage of paperwork. Staying organized throughout the process will help you stay sane. Start a filing system both for physical paperwork and digital documents so you have everything you need in a safe and easily accessible place.
You might also want to get a head start on the documents you’ll need to apply for your mortgage. These typically include recent paystubs, tax returns, W-2s, a list of assets as well as debts and copies of checks from recent rent payments.
5. Get prequalified
So you’ve done all of the above, you’re in good shape, you’ve got a realtor, and you’re ready to start looking. Now is the time to get prequalified so you know what a bank is willing to lend you. To get prequalified, you’ll likely just need to verbally provide the bank with information about your income, assets, and debts. Sometimes the bank will also perform a credit check.
If you are prequalified for more than you’ve determined you can afford it’s also important to remember to stick to your budget. You’ll thank yourself for not overspending when that first roof leak or property issue bill makes an appearance!
Have questions on how to improve your credit score, apply for a mortgage, or find help determining what you can afford? Visit our branch locator
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The information mentioned in this article is for informational purposes only, is intended to provide general guidance and does not constitute legal or tax advice. Each person’s situation is unique and may materially differ from the information provided herein. You should seek the advice of a financial professional, tax consultant and/or legal counsel to address your specific needs before any financial or other commitments regarding the issues related to your situation are made. Banco Popular North America does not make any representations or warranties as to the content contained herein and disclaims any and all liability resulting from any use of or reliance on such content.
Copyright © 2016 Banco Popular North America is an Equal Housing Lender and a Member of the FDIC.