Are you a first time home buyer? Are you trying to determine your budget? We (lenders) are more than happy to help you find your answer(s), but here are some tips to get you started:
One of the first things that you’ll want to look at is your credit. If you do not have any credit established, you’re going to need to start there. You can establish credit by opening up a credit card (for first timers, I have heard great reviews about the Chase Freedom Unlimited card). Once you’ve been approved, it’s going to take at least a few months to build up a credit score. They will start by allotting you a certain limit (example: you can only spend $700 a month). It is best to keep your utilization under 30%. Therefore, if your limit is $700, then try not to spend more than $210 a month on your credit card. Most importantly, NEVER be late on your payments. This will negatively impact your score in a big way. Another factor that will impact your credit is a loan (student loans, car loans, medical bills, etc.). This will be taken into account as well, which includes your payment history for each individual loan. Sites such as Credit Karma can help to give you an idea of your current score, however, your lender will pull a report that is much more accurate. Don’t be surprised if they are different.
The next item you will want to look at is your debt. As mentioned previously, this involves any loans that you currently have open in your name, as well as any unpaid credit card bills. Even something as simple as a medical bill can affect this. Have you ever had to go to the ER? Did you pay off every bill from that visit? Luckily, your credit report will show any delinquent bills that you may not be aware of. Make it a priority to pay off any debts in question.
Once you’ve built up a decent credit score and have paid off all your debts, you’re going to need to look at your salary. Lenders will only ask for your gross salary, however, you will also want to keep in mind some other important factors, such as: what your salary is after taxes, how much you spend monthly on bills, etc. To play it safe, you’ll want to use THIS number (what you get after subtracting bills, taxes, etc.) to ensure that your home purchase will not be putting you into debt. You will typically want to place your max budget as 3x your gross salary.
Lastly, you will need to save up for a down payment. If you search the internet, I’m sure that most places will say that you need 20% down. While 20% is ideal, most people on average only put 3-5% down. You will need a minimum of 3% down (unless you use a VA loan), but realistically, try to stick to 5-10%. Therefore, if you’re looking for a house that’s $200,000, then be prepared to put about $10,000 down (that’s 5%).
Feeling overwhelmed? Start here with Zillow’s free house affordability calculator. It might not be 100% accurate, but it can at least point you in the right direction.
Give us a call today! We can help you through the entire process, including helping you raise your credit score, offer financial advice, and everything in between! 770-824-9777
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