What to do before buying your first home
You know you're ready to buy a house; you've had your eye on a particular neighborhood for quite some time, you've been slowly donating unused items to the local charity and possibly you've even been saving up pennies here and there for the down payment. So far, so good! Here are a few important tips to be sure your purchase is smooth.
1) Check your credit
This is a big one. The homebuyer's credit score is among the most important factors when it comes to qualifying for a loan these days. Your score will likely affect the cost of the loan so definitely know what your numbers are before going forward.
2) Evaluate Your assets & liabilities
Know what you make, what you spend and where it all goes. A first-time homebuyer (everyone, in fact) should have a good idea of what is owed and what is coming in. Take a few months to carefully track your spending and be mindful of small purchases along the way.
3) Qualify yourself
By calculating debt-to-income ratio and factoring in a down payment, you will have a good idea of what you can afford, both upfront and monthly.
Though there's not a fixed debt-to-income ratio that lenders require, the old standard dictates that no more than 28 percent of your gross monthly income be devoted to housing costs. This percentage is called the front-end ratio.
The back-end ratio shows what portion of income covers all monthly debt obligations. Lenders prefer the back-end ratio to be 36 percent or less, but some borrowers get approved with back-end ratios of 45 percent or higher.
4) Organize documents
When applying for mortgages, home buyers must document income and taxes. Typically, mortgage lenders will request two recent pay stubs, the previous two years' W-2s, tax returns and the past two months of bank statements -- every page, even the blank ones.
5) Figure out your down payment
That can be tough to scrape together but incredibly worth it in the long run. Plan ahead, put money aside, sacrifice where you can because it all adds up to a bigger down payment!