First Time Home Buyers

STEP 1: DETERMINE HOW MUCH YOU CAN AFFORD.

Before you start looking through listings in the hope of finding your dream home, conduct a personal audit of your finances. Taking a serious look at all of your finances will prepare you for this huge step. You will be better able to know how much of a house payment you can afford and if you can cover the ongoing expenses of owning a home. A self-audit of your finances includes these three steps:

• How much savings do you have? Before you consider purchasing a home, you should make sure you have a solid savings plan in place. You also need to have two to four months of living expenses already in savings. These funds can help pay some of the initial expenses like a down payment and closing costs. Lenders will want to see that you are responsible and have a savings plan that works.
• What does your current spending look like? It’s important to know how much you spend every month. You also need to know exactly where your money is going. This step is essential for calculating how much of a mortgage payment you can afford. Make sure to account for all of your expenses, including everything from utilities to groceries and clothes to student loans. Count retirement funds, regular savings, entertainment, and kid’s activities.
• How is your credit? To qualify for a home loan, you will need a good credit score, a solid history of paying bills on time, and a debt-to-income ratio (DTI) of about 43%. Lenders usually consider the ongoing expenses of owning a house to be about 1/3 of your monthly gross income.