Your first home is likely the biggest purchase and financial decision you will ever make. And while it can be a very exciting time, it's important to make sure you are ready to take this step. This can be a time of uncertainty and fear; however, it doesn't have to be! It can be the most exciting time of your life if you have prepared well for this moment. There are several areas that should be evaluated closely before taking the leap of owning your first home:
- Is my credit score strong enough to get approved for a mortgage?
This is actually a multi-faceted question, because you may be able to secure a loan with a sub-par credit score; however, it can have a large impact on what this loan will end up costing you in the long run. The better your credit score, the better terms you will get on your mortgage. The FICO score is the model used by most lenders for granting home loans. Although it's possible to secure an FHA loan with a score as low as 580, it doesn't mean you necessarily should. A good goal is to have your credit score between 720-740 before applying for a mortgage. If you need to work on your credit score and amend some items, it may be best to wait before buying a home.
- Am I ready to settle into a specific area?
A big question you should consider when thinking about owning your first home is whether you are ready to settle down and take root in a certain area. Is this a neighborhood you can see yourself living in for years to come? It's important to make sure the area you are considering has the characteristics you would like to have long term, as it's not a quick and easy process to sell your home and move to another area of town.
- Am I prepared financially to own my own home?
Do I have money saved for a down payment? In addition to a down payment, it's important to be prepared for additional costs that are associated with owning a home, such as taxes, unexpected repairs, insurance, maintenance costs, etc. It's also important to have a budget planned ahead of time to ensure you can afford a monthly mortgage payment and have thought about any unexpected costs that could arise.
- Do I have financial stability in my life?
Lenders like to see that you are stable and reliable in repaying your debts. This is reflected not only through your credit score, but can be tracked through bank statements and other financial history. Additionally, lenders will be looking for a stable employment history to show that you have income stability to pay for your new home. If you’ve bounced from job to job in your recent past, it may be best to put a hold on owning your first home until you’ve gained some tenure at your current position. If you have a stable financial and employment history, then you may be ready to start the home buying process.
Owning your first home is exciting! Make sure you have asked yourself the important questions ahead of time so that you know you’re reading to start the process. For more first time home buyer information to help you prepare, download our eBook now!