Buying a home is an exciting and nerve-wracking experience you'll likely never forget. While the process can be stressful, purchasing a home will teach you a lot of things about where you should be with your personal finances.
If you're a veteran homebuyer, you might look back on some financial things you wish you would've done before you made your purchase. For new homebuyers, there are some things you can address before you make the big decision. Making the homebuying process easier and less stressful will pay off in the long run.
Here are seven financial responsibilities you need to tackle before buying a home:
1. Check your credit score
One of the first things you should do before you decide to purchase a new home is get your credit score for you and your spouse - if you're married. According to ABC News, in today's housing market, the lowest you can typically go on your credit score is 600, particularly if you are applying for a Federal Housing Administration (FHA) loan. Additionally, the seller could choose someone putting down the same offer just because the other buyer is financed with a conventional loan.
Your home loan can dictate if you are competitive enough in the housing market to buy, which ultimately leads back to how well your credit score ranks. Having a good credit score usually leads to better opportunities for big purchases in your life.
2. Settle any outstanding debts
Having other debts, while looking for a new home, is a roadblock to the house of your dreams. According to ABC News, things such as delinquent auto loans, credit card debt or student loans can affect your mortgage payment. Many lenders want to see roughly 45 percent or less of your income go toward your previous debts and the new mortgage.
As a homebuyer, you want to have a lower payment-to-income ratio, so you know you can afford the house in the long run.
3. Know your financial status
If you don't know exactly how much you can afford on your new home, you might need to take a step back before you get swallowed in an expensive mortgage. Luckily, after the housing market crash, it's becoming harder to get into a mortgage you cannot afford. To prevent any serious issues, simply get your financial status in order before you make a decision.
According to Trulia, you'll want to know how much cash is needed for your home, along with what you'll likely receive if you already own a home and sell it. Additionally, you need to consider things such as property taxes, utilities, home-related expenses and insurance. When you factor in all of these other expenses before you buy, you will have a much clearer picture of the road ahead of you.
4. Remember your loan fees
One thing a lot of new homeowners tend to forget is their loan fees for the new house. According to Bankrate, you should save enough to give a down payment for roughly 3 to 20 percent of the home's total cost. On top of that, you need to make sure you have saved enough to pay for loan fees, since they can be around $2,000 to $4,000 for a $200,000 mortgage.
"Getting help could be the best move in your homebuying experience."
Talking to one of our financial experts at Landmark can help you figure out all the expenses you'll need to address before you make the big purchase. Getting help could be the best move in your homebuying experience.
5. Boost your savings account
Lenders typically don't like to see prospective homeowners living paycheck to paycheck, Fox Business reported. To help out your chances of getting approved, try increasing your savings account as much as possible before you apply for a loan.
After you purchase your home, you will likely need approximately 2 to 3 percent of your home's value to keep up with the house's overall maintenance costs. Without any savings, you could see the value of your home drop significantly.
For more information about your home loan options, contact Landmark Bank.
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