First Time Homebuyers: What You Need to Know (Part 1)

This will be the first of a multi-part series on getting ready to buy your first home. As I continue to meet new prospects and people who have never tried to buy a home I'm amazed at how necessary it is for us as Realtors to educate our clients. This education is key to not only get them in their first home but to keep this home.  I am usually asked what is needed from them to buy. I can go into getting pre-qualified first and knowing your credit score but I was thinking about this more and I realized that pre-qualification is not the first step. Let's face it we just passed a cycle where a good credit score could have gotten you any loan and finally it has tightened up. So what is the first step?

The first step should be to establish a budget. I do not mean just come up with a figure in your head and say well I can afford so and so amount. I mean actually sit down and figure out all of your income sources and your expenses. So many times I saw people go from renting for $1000 a month to a mortgage of $3000 because they thought that is what they could afford. I think many people were blinded by the increase in values that they thought they were willing to sacrifice enough to make that mortgage. Once values dropped then so did the sacrificing and they walked away. The truth is that if you can afford an increase in monthly payments of $2000 then you should be able to show that you are saving $2000 per month in either a savings account or other investment vehicle.

A budget will help you find where your money seems to be disappearing. For many it's a wake up call and they either realize that they eat out too much, buy too much gourmet coffee, or even pay too much in ATM fees.  Once you have a budget and have made the necessary adjustments to your lifestyle then you will see how much disposable income is left. Set up an emergency fund that covers about 3 to 6 months of living expenses. Once you can do that you are ready to start looking into buying your first home.

Next we'll cover paying down your debts and increasing your FICO score while working w/ a reputable lender.