Buying your first home is stressful, expensive, and a big life moment, which is why you have to be prepared financially and mentally before making the leap to home ownership. Once you’ve contemplated the options and decide that buying your home is exactly what you want to do, it’s time to take a good look at your finances.
Check your Credit Score
Since you’re still in the early stages of buying a home, make sure to check your credit score at least 6 months out from when you expect to be applying for a mortgage. You can check it through the three credit bureaus Equifax, Experian, and TransUnion. Analyze each report and make sure there aren’t accounts that weren’t created by you and that none of your accounts are currently in delinquency.
If you find any discrepancies in your credit report, make sure to dispute them as soon as possible. Getting errors removed from your credit report may take a long time, but it’s good to get the investigation started so it can be removed in a timely manner.
Work towards improving problems
If you have any delinquent accounts or something at a collections agency, put paying that off at the top of your list to do. Getting those current will point your credit score in the right direction. You’ll also want to work on the credit cards and loans you have that have a large balance and high-interest rate. Getting rid of some of these accounts with a balance will alleviate the financial strain on you once you have a mortgage to pay every month.
How much can you afford?
Before you start looking at listings and come up with a list of houses you love, you really need to take a realistic and objective look at your current financial situation so you know how much you’ll be able to afford on a mortgage. As a good rule of thumb, you’ll want to divide your yearly gross income by 12 to figure out how much income you bring in each month, then to figure out how much of that income should go toward your mortgage, multiply it by 0.28. This number represents the maximum amount that you can feasibly pay each month.
Check back for my next installment when I discuss how to find an agent who’s best for you and your situation.