Make Sure You’re Ready
Buying your first home is a big financial step. You’ll want to consider the added financial responsibilities, including things like moving costs, home repairs, landscaping, property taxes and insurance. You should have a steady income, manageable debt and feel confident you will stay in one place for awhile.
Consider the Benefits
As a homeowner, you’ll naturally feel more connected to your community. And unlike renting, every mortgage payment you make helps you build equity and adds to your credit history. Additionally, mortgage interest and real estate property taxes you pay may be tax deductible. Consult a tax advisor.
Know What You Can Afford
Start by assessing your income. Then consider liabilities like student loans, credit card balances and auto loans. Ideally, the amount of your monthly debt payments, including your proposed mortgage payment, should be equal to or less than 36% of your gross monthly income. And remember to budget for a down payment (typically 5% to 20% of the purchase price) and closing costs (usually estimated at 2% to 3% of the purchase price).
Get the Best Rates
A good low interest rate on your mortgage can potentially save you thousands of dollars over the life of your loan. Your credit score is an important factor in qualifying for a lender’s best rates, so achieving and maintaining a FICO score of 740 or higher can be an important step. In some cases, you can also pay a percentage of the loan amount (known as “points”) at closing to get a lower interest rate.