Buying a home is a huge investment. Make sure you're prepared for the process by assessing your savings goals, credit and future neighborhood.
Checklist to prepare for buying a home
You know that buying a house is a life-changing investment - usually a 30-year investment! What you might not realize is how long you should prepare before jumping into it. Your bank account and credit may need some work, plus you want to do research on your potential neighborhood.
It's wise to start planning a year before you want to start shopping. So, if you're looking to buy a home during the Spring 2016 season, here's what you should do.
Save Your Money
A savings account is one of the first things you should establish to prepare for purchasing a home. Ideally, you can put a 20% down payment on your home. This isn't a realistic goal for everyone, so you will have options if you can't meet that traditional down payment. The more you can put down, the more you'll save on interest and monthly payments.
Here are tips to help you save:
- Direct deposit a certain percentage of your paycheck into your savings. You won't even miss it!
- If you get a raise, put the difference directly into savings.
- If you pay off a debt, apply those monthly payments to your savings.
- Consider opening a Certificate of Deposit (CD) to prevent yourself from accessing the money you've saved. CDs typically earn more than traditional savings accounts.
Improve Your Credit
Your debt-to-income ratio will be carefully examined during the mortgage process, so paying off creditors should be high on your list of priorities.
If you have multiple sources of debt, consider consolidating with one personal loan. This will set up fixed payments for a certain time period, giving you a clear pay-off date. Of course, you need to be in a position to avoid any more credit card or loan purchases. In the months prior to applying for your mortgage, be sure to avoid any large purchases, such as a new car.
Remember that your entire credit report will be evaluated, so paying off debt isn't the only thing to worry about. Paying bills on time is just as important, plus you should evaluate your credit report for any errors. If there are errors, get them fixed now so your credit will look good when it's time to apply.
Investigate Your Prospective Neighborhood
Make sure your expectations match reality by researching your future neighborhood. Note what houses are currently selling for and start making a list of things you need to have, like to have and are neutral about. It will also help to follow real estate news to monitor how the market is doing.
Once you've done your research, start creating a moving budget. Don't forget to include things like:
- Closing costs
- Home inspection
- Credit checks
- Moving costs
Estimate these costs will give you a better idea of how much you'll need to save.
Call Community First When You're Ready
Community First Credit Union can help you with saving, consolidating debt and getting your mortgage. We look forward to helping you get your dream home!