You’ve scrimped and saved, spent hours online perusing real estate listings and are finally ready to start the process of buying your first home. It’s an exciting time in your life, but if you’re a first-time home buyer looking to purchase your very own home, there are two really important things you need to do first.
Get Pre-Approved For a Mortgage
Before you even start your property search you should get pre-approved for a mortgage. This important step should be the starting point on your journey as it will help you figure out how much you have to spend on a home. That way you and your Realtor can eliminate wasting time on properties that fall outside of your budget. Having a pre-approval letter in hand can also help you get your offer accepted if there are multiple offers on a property. It shows the seller you are a serious buyer who has already taken the time to get pre-approved.
So what is a pre-approval letter? According to NerdWallet, it is “a lender’s offer to loan you a certain amount under specific terms.” A lender will pull your credit, look at your income to debt ratio and review other pertinent financial documents.
Whilst getting pre-approved for a mortgage doesn’t 100 percent guarantee you will qualify for the loan when you’re ready, it is an important first step that shouldn’t be overlooked.
Don’t Forget Other Homeowner Expenses
Picking a property based on whether you can afford the mortgage payment could get you into financial difficulties down the road if you don’t allow for other homeowner expenses. On top of your monthly mortgage, you will also have to pay other homeowner expenses such as property taxes, property insurance, private mortgage insurance (if you have a conventional loan and make a down payment of 20 percent or less), and homeowner association dues if the property you are purchasing is part of an HOA. Experts also suggest budgeting for upkeep and repairs on your home by using the 1% rule. According to the one percent rule, you should set aside at least one percent of your home’s value every year for maintenance issues. For example, if your home is worth $300,000 you should set aside $3,000 per year or $250 per month.
It is important to factor these costs into your budget along with the mortgage payment to avoid financial strain.