3 Things Every First-Time Home Buyer Should Do Before Shopping
As a first-time homebuyer, you may be overwhelmed by the entire process. Fortunately, you can do three simple tasks before you start shopping that will make the whole process easier.
1. Put Your Finances in Order
The time to organize your finances is several months out from the time when you plan to purchase.
Don’t just assume you have good credit, even if you pay everything on time and carry little to no debt.
Mistakes on your credit report, forgotten collection accounts, or a lack of suitable credit accounts can
bring down your credit score.
Request a copy of your credit report from the three major credit bureaus. Verify that the information is
correct, including all accounts, payment records, credit pulls, addresses, and employers. You can dispute
mistakes or report updates to each bureau, but it can take several weeks before these updates show on your
Your debt-to-income ratio plays a major part in your approval odds. Generally, you want to maintain a
ratio below 43 percent to ensure the best chances of securing a home loan at a competitive interest rate.
If your debt-to-income ratio is higher than 43 percent, you need to
increase your income, pay off debt, or both. If you opt to increase your income, keep in mind that you will
need to sustain the income increase for a couple of months before it can be considered for your home loan.
2. Determine Your Budget
Your budget needs to include more than just your monthly house payment. You will actually need two
budgets: one for the initial house purchase and a second budget for once the purchase is complete.
The amount of the down payment needed varies depending on your loan type, your credit, and the possibility
of PMI (private mortgage insurance). A conventional mortgage typically requires a down payment of at least 5%, where an
FHA loan – a common option for first-time buyers – only requires a 3.5% down payment.
Another consideration is PMI. Private mortgage insurance is typically required on loans that exceed 80% of
the home’s value. If you put down a 20% down payment, you won’t have to pay the extra PMI amount every month.
Look beyond your loan payment amount when making your post-purchase budget. The monthly cost of ownership
includes your loan payment, along with property taxes, insurance, HOA fees, and maintenance. Estimate these
costs in advance so you can be sure the homes you are looking at fit your budget well.
3. Study the Market
If you can begin researching the market at least several months before you plan to buy, you can develop a
clearer idea of which neighborhoods meet your personal needs and budget.
Don’t get caught up in market hype – take the time to fully research the market cycles in the
neighborhoods that interest you. Instead, list what the must-haves are for the home and neighborhood where
you want to live. Use this list to hone in on the neighborhoods that will best fit these needs.
From there, you can do a more thorough analysis. Check how many homes are on the market for the area.
Contrast current numbers to the average homes sold and their prices over the last few years so you can
determine if the market is up or down. You can use these numbers to guide your decision on the best time to
Market research can be overwhelming, so reach out to an agent as you get closer to your desired shopping
window. When researching agents, look for those who have actively represented buyers in the neighborhoods
that interest you so that you are assured that they fully understand the market you plan to buy in.
Your agent works for you – in many ways they are your employee. Be transparent with all of your needs,
wants, and concerns. Your agent can only help you if you let them.
Contact Kingston Real Estate & Management for more assistance with your first home purchase.