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Five Helpful Tips for First-Time Homebuyers

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First-time homebuyers have a lot to think about: from finding the perfect place to getting a great loan, the learning curve associated with purchasing a first home is steep. Fortunately, there’s enough expert advice to go around in the home buying community, and first-time homebuyers who pay attention to these five tips can enjoy an easier and less stressful purchasing experience.

5 Things First-Time Homebuyers Need to Remember

  1. Conduct a credit check

Today, your credit score is one of the most important factors in getting approved for a loan. There are dozens of ways to check your credit score online without committing to services or fees. If you find that your report features unpaid accounts, collections, or mistakes, you may be wise to dedicate some time to cleaning up your credit score before applying for a loan. As a general rule, the most lend-worthy first-time homeowners are the ones with lots of available credit and less than 1/3 of it used.

  1. Pay attention to your monthly cash flow

If you’re the type of person who has no idea how much money you make every month, or how much you’re paying out, it may be wise to pay a bit more attention to your assets and liabilities. By tracking your spending before you apply for a home loan, you can better understand how mortgage lenders will perceive your spending habits, which allows you to adjust accordingly.

  1. Get your documents together

Being a first-time homeowner requires a lot of paperwork! As a general rule, you’ll need your two most recent pay stubs, W-2s and tax returns from the previous two years, and bank statements from the last two months. Having these documents printed, organized, and compiled before you set out to get a loan can streamline the process hugely, leaving you with less stress and more time.  Keep in mind that if you’re self-employed, you may need as much as two years’ worth of payment history to qualify for a loan.

  1. Know your ratios

There are two important ratios in home purchasing: the front-end ratio and the back-end ratio. The front-end ratio is the percentage of your monthly income that’s dedicated to housing costs. Keeping this below 28% is wise. The back-end ratio is the portion of your income allocated to monthly debt. For a good home loan, this should sit between 30-36%. Together, the front- and back-end ratios determine what size loan you qualify for, so it’s wise to know where you sit before you head to the bank.

  1. Pull together your down payment

The type of down payment you can put down on a house will have a huge effect on your loan. Talking to a mortgage lender about how much down payment you should have can help you plan more efficiently and get the home of your dreams.

While being a first-time homebuyer may be confusing, these five tips can help you stay organized and on-track to find a home you love.