3 Financial Steps to Take Before Purchasing Your First Home
Buying a home is a dream for many people. There is nothing like having your own place and no longer having to pay rent to someone else. However, there are a number of steps that you have to take in order to prepare to purchase your first home; it’s a huge financial investment and you want to make sure you’re as prepared as possible.
Set a budget for your home
Everyone has their dream home in mind. However, you will have to stick to some kind of a budget. You need to decide how much you can spend before you start looking for a house and then stick to that number. Keep in mind the place you live in can affect how much you will have to pay for your home. You may be able to get your dream home if you are willing to relocate. For example, if you currently live in the city, then you may be able to save thousands of dollars by moving to the suburbs. In fact, there are homes in Maryland that cost half as much as homes in Washington D.C. Whatever you decide to do, make sure you’re looking for homes you can afford and feel comfortable paying on the mortgage each month.
Improve your credit score
Your credit score is one of the factors that determines whether the bank approves you for a mortgage. It also determines your interest rates. If your credit score is 740 or higher, then you will be able to get the best interest rates. Many young people have trouble getting a mortgage with a good interest rate because of blemishes on their credit report.
Issues like missed credit card and student loan payments can ruin your credit. Fortunately, there are things you can do to improve your credit score. Check your credit report for errors and make sure there are none. You can also boost your credit by paying off your debt. Additionally, you will need to pay your bills on time. Your credit score constantly changes, so check it often. Checking your own credit score does not reduce it and is a way to be financially responsible.
Save up for a down payment
While building your credit, you will need to save up for a down payment. The typical down payment is 20 percent of the total cost of the home. If you have a high credit score, then you can have a lower down payment. However, even if you have excellent credit, it is still a good idea to put down a higher down payment, which lowers your monthly mortgage payment. It can take several years to save up for a down payment. The earlier you start saving up for the down payment, the better.