Buying your first home can be exciting and stressful all at the same time. Before you start working with a realtor and attending open houses and showings, you should first make sure that you are financially ready to buy a home. Here are 5 things to know when you’re looking to buy your first home.
Check Your Credit Score
Getting a mortgage requires a good credit score, so we recommend checking your credit report. Look for any errors in your report that may be dragging your credit score down. Most errors can be fixed, and by monitoring your credit before applying for a mortgage, you will avoid any surprises. If your score is less than you’d like it to be, try paying down any credit cards and stop using them for a couple of months. Also, avoid opening any new lines of credit until after you have closed on your new home.
Save for a Down Payment
In addition to making sure your credit score is in order, you will also need to think about the down payment that you will need in order to make your first home a reality. Down payments are typically between 3.5% and 20% of the purchase price of a home. For example, for a $300,000 home, the minimum down payment you will need is $10,500. You should also be sure to save more than your minimum down payment to pay for closing costs.
Determine How Much You Can Afford
With rent prices on the rise in Colorado, it may actually be cheaper to buy a home than continue to pay rent. However, you want to be sure that you buy a home that you can afford today, not 5 years from now. You can estimate what you can afford by calculating 30% of your gross monthly household income. Any more than that could leave you with financial stress.
Learn About Mortgage Types
Mortgage types can vary and it may be confusing to compare one mortgage to another. Take time to learn about the differences between fixed-rate mortgages and adjustable rates. Mortgages can also vary in length from as little as five years to as much as 30 years. Most first time home buyers opt for fixed-rate 30-year mortgages. There are also different mortgages available to first-time home buyers. For example, an FHA mortgage requires a small down payment, which means that your monthly payment is a little more expensive because you have to pay for private mortgage insurance. Do your research on all of the loan options available to you.
Get Documentation In Order
Once you’re in the right place financially to purchase your first home, it’s time to get documentation in order. You can get a pre-approval from a bank like Points West Community Bank, or from a local loan officer. This will help you submit your offer on the home you want to purchase. To close on a home, you will need copies of paystubs, W-2’s, bank statements, and if you’re self-employed, copies of your last two tax returns.
At Points West Community Bank, we are your resource for financial knowledge. If you have any questions about how to save money for a home or improve your credit score, talk to one of our friendly bankers at your local Points West Community Bank! With several locations across Northern Colorado, we’re easily accessible.