How to Get Your Finances Ready for Your First Home

Making the decision to buy your first home is a big step in life and one that requires planning before you apply for a mortgage. A lot of home buyers will start saving money several months to a couple of years before beginning the hunt for their perfect home. It's also important to get your finances in order months before getting a mortgage, because your credit history, score, and financial situation play a large part in what lenders will look at to determine if you qualify for one of their mortgage loans. Our Atlanta mortgage lender team has some tips to help you get your finances ready and ensuring you have the best chance possible of qualifying for a loan.

Things to Consider

One thing you need to be sure of is whether it's the right time in your life for buying a home. There can be a lot of pressure in society to have a home by a certain age, but not everyone is ready to take that plunge. Where one person may be ready at 25 to buy their first home, others may not be ready until they are in their 30's. For example, you could have a great credit score but still not be ready because you have a job that has you moving around a lot. It's also important to get your finances ready so that you can create a realistic budget. Plan for those extra expenses, such as home repairs, utilities, taxes, and insurance. 

Know What You Can Realistically Afford

As mentioned earlier, you need to sit down and create a budget before buying a home. This will help you see what you can comfortably afford to pay on a mortgage each month. It also gives you an idea of how much you can spend on a home and whether you have a bit of a cushion to go a bit over that budget. Too often, home buyers will use the maximum amount they can afford and then leave themselves in a tight financial situation that leaves no room or money for emergencies. 

The best advice is to keep your monthly mortgage repayments under 30% of your gross monthly income. You need to have that breathing space in your budget to cover any unexpected expenses. It's also a good idea to set aside a savings account that has at least 3 to 4 months' worth of funds that can cover all of your monthly repayments, just in case.

Go Over Your Credit Report

Your credit report has a lot of useful information on it, such as your credit score, what credit accounts you have open, and whether there are any issues with these accounts. This is something you should do several months ahead of buying a home. It will give you a chance to have any errors amended, as well as giving you time to boost your score. For example, if you have a few high-interest credit accounts, you should pay those down or off, This will not only help raise your score, it will also save you money because you aren't paying those higher interest rates.

Saving For That Down Payment

When you apply for a traditional mortgage loan, you will usually have to put down anywhere between 3.5% to 20% of a home's purchase price for your downpayment. The more you put down, the better the mortgage package you can qualify for. You should start saving for your down-payment a few years ahead of time. Make sure you keep this money in a separate bank account from where you are saving for mortgage-related fees so you don't end up having to use the money for the downpayment on things like closing costs.

Tip: Be sure to put funds aside for a home inspection, which is different from a home appraisal in that it gives a more detailed report on any potential issues with the property. It will also save you money in the long run.

Shop Around

A lot of people will go straight to their bank to apply for a loan. The problem is that you are only being shown mortgage packages that are specific to them. A mortgage is something you should definitely shop around for and the best place to start is by using a mortgage broker. Brokers have access to hundreds of lenders and mortgage options that aren't available in the mainstream. They will also find something that best suits your financial needs and situation. 

Get Your Financial Documents In Order

The mortgage application process requires a lot of documentation, such as bank statements, proof of income, W-2 forms, income taxes, and other debts you may have. You may also need a certified letter if the funds for your down payment have been gifted to you. Having all of this ready ahead of time will make the mortgage process go more smoothly and means you aren't having to run back and forth to get these details.

If you have questions about what you will need to be financially ready to buy your first home, give our Atlanta mortgage lender team a call today!