For a long time, a significant part of the American dream has been to become a homeowner and invest in your financial future with the purchase. Although buying a home for the first time can be exciting, it takes plenty of preparation to ensure that you can obtain the necessary funds. When you’re ready to buy a home, there are a few ways to get your finances in order to make for a smooth process.
Save for a Down Payment
A down payment is necessary to secure a home loan, making it necessary to save at least 20 percent of the value of the house that you plan to buy. In some cases, you can obtain an FHA loan as a first-time buyer and save less to put down, but with a higher down payment you can reduce your monthly payment on your mortgage and afford a more expensive home.
Save for Closing Costs
Many people don’t realize that they’ll also need to pay for closing costs when buying a house to complete the transaction, according to bankrate.com. Expect to pay two to five percent of the purchase price of the home for closing costs, which is an average of $3,000 to $7,000. In some cases, you can avoid paying for closing costs by obtaining a no-closing-cost mortgage but be careful of having a higher interest rate with the deal.
Increase Your Credit Score
When applying for a home loan, your credit score is one of the main factors that lenders will evaluate to determine if they can trust you as a borrower. Increasing your credit score can allow you to obtain a lower interest rate and save more money in the long run. Make it a point to pay off your remaining balances on your accounts and make your payments on time to boost your score. You’ll also want to contact a credit bureau to have any errors removed from your credit report.
Determine What You Can Afford
According to moneyunder30.com, determine what you can afford before shopping for a home. Calculate your household income and multiply it by two or three to determine your price range. You’ll also need to take any debt that you’ve accumulated into account, as well as the cost of property taxes, HOA fees, and utilities.