3 Steps You Should Take Before Buying Your First Home

Last updated: March 12, 2017

Buying your first home is a momentous occasion, but it can also be an exceptionally daunting process. Fortunately, before you purchase your home, there are some steps that you can take to make things go a little more smoothly.

1. Check Your Credit Report

Whether you are approved for a mortgage and how much you are approved for will depend greatly on your credit score. Checking your credit report will give you an idea of where you stand in terms of great, good, average, poor, or bad credit. This will ensure that there are no surprises during the mortgage application process.

With great or good credit, you will likely have no trouble obtaining a mortgage. With average credit, you should expect to pay a slightly higher down payment or receive a higher interest rate on your mortgage. With poor or bad credit, you will want to become more proactive about spending, saving, and paying off your debts before you apply for a mortgage. While it may be possible to obtain a mortgage with poor credit, it is not advisable since your mortgage rate will be high and your down payment will be considerable.

You can currently get a free copy of your credit report from FreeCreditReport.com. You can also track your credit report monthly with services like CreditKarma.com.

2. Know Your Budget

Before applying for a mortgage or shopping for a home, it is important that you know your budget. Consider the following questions:

  • How much can you comfortably afford for a down payment?
  • How much can you comfortably afford as a monthly mortgage payment?
  • Have you set funds aside to cover closing costs?
  • Do you have funds to cover inspection fees?

Knowing your budget will make sure that you don’t shop outside of what is comfortably affordable for you.

Even with these numbers in mind, avoid maxing out your budget. Pushing your financial limits will leave no wiggle room should you run into unexpected expenses or financial hardship.  A good rule of thumb is to use 60 to 70% of your net income after monthly expenses as a cap for your mortgage payment.

3. Consult a Mortgage Officer

Navigating the mortgage application process can be confusing. Mortgage officers know the ins and outs of applications and can offer advice based on your personal situation. Before you hop online to start applying for mortgages, find a reputable mortgage officer and arrange to meet them for a consultation.

When meeting with your mortgage officer for the first time, you will want to bring with you any information about your current income as well as any debts you are currently carrying. This information will help your officer to determine your likelihood of approval as well as your budget for home shopping.

The best place to begin searching for a reputable mortgage officer is your bank. If you do not have a good relationship with your bank, consider asking friends and family for recommendations and referrals.