A Guide for First-Time Homebuyers
Buying your first home is a big deal. With prices and rates increasing over the last couple of years, many are still uncertain if they should take the leap or wait it out.
As long as you’re patient, prepared and have strong financial standing, you should have nothing to fear. Here are some tips on how to prepare for your first home purchase.
Prepare your credit
Credit is a major factor in the home buying process and can delay, halt, or stop the dream of homeownership. It can take time to get inaccurate history resolved — starting now is essential. Review your credit report and begin working on any discrepancies. If you don’t have any credit history, try to establish at least one year prior to obtaining a preapproval.
Any change in credit can have an impact on your approval. Ensure that all bills are paid on time to show your creditworthiness to the lender. Cutting back on wants and minimizing expenses can help you pay down debt and improve your creditworthiness.
Do not apply for any new credit or make any significant financial changes. New credit inquiries and changes to your financial situation may raise questions.
Season your down payment
While there are down payment assistance programs, many mortgages will require at least 3% down. Start small now and build your down payment. If you’re sourcing funds for it, ensure that they are on deposit in your account at least 60 to 90 days prior to applying for a mortgage. This “seasoning period” is to allow lenders to ensure the funds are verifiable and now from a new loan.
Ensure that you have an emergency fund with three to six months of savings stored away. This does not include the funds for your closing costs and down payment. This will help with any unexpected expenses that may come up before, during or after purchase.
Prepare your documents
If your lender requests documentation, get it in as soon as possible or it may delay your closing. Additionally, send all the documents together, rather than one at a time, to ensure nothing gets misplaced.
Don’t let documentation hold up your dream of homeownership. Be prepared to provide the following documents to your lender:
- Two forms of identification
- IRS tax returns (two years’ worth if self-employed)
- W2 for the past two years
- Two months’ worth of bank statements
- Employer’s contact information
- Any additional documentation the lender requests
Additional tips to reduce stress
Your debt-to-income ratio should be under 40% to secure a home loan. Begin paying down debt as soon as possible.
Work with a trusted Realtor to discuss would-likes, must-haves and deal-breakers for your future home. This will make the process of finding the perfect home easier.
Your lender should be someone who communicates clearly, answers your questions and prioritizes your best interests. Take time to compare lenders, ask questions and choose one who makes you feel informed and confident throughout the process.
Buying your first home doesn’t have to be overwhelming. With the right preparation, it can be an exciting and rewarding experience. Focus on what you can control — your credit, savings and documentation — and take things one step at a time.
The more you prepare now, the smoother the process will be later. Homeownership may feel out of reach, but with patience and planning, it’s more achievable than you think.
By Rachel Caballero | TruWest Credit Union
