At First Fidelis LLC, we work with many first-time homebuyers throughout the buying process. However, knowing exactly when the right time to buy your first home is not easy. While buying a first home can look different for everyone, we want to provide you with some ways to know if you are ready to start searching for your first home.
1. You Have a Five-Year Plan
Home mortgages typically come with 30- to 40-year agreements. This does not mean that you have to commit to living in the same house for the next few decades. However, buying a home should be something you do when you have a plan for the next few years of your life.
If you are unsure about where you will be living or working, committing to a home loan agreement may not be the best financial decision. On the other hand, you may have a young child and a stable job that you do not plan on leaving anytime soon. In cases like this one, you may be ready to buy your first home.
While everyone’s journey will look different, having a five-year plan may indicate that you are ready to buy your first home, especially if your plan involves settling down in a certain area with a partner or family.
2. You Have a Healthy Credit Score
We hear the words credit score a lot when discussing any type of loan. Credit scores are an indicator of a person’s financial situation, and there are various factors involved in determining this number, which can range from 300 to 850.
Credit scores are calculated much like school GPAs. They are cumulative numbers to measure your success as it pertains to credit. These scores are calculated by looking at your payment history, length of history, and more. The grades are weighted. Here’s how your credit score is calculated:
- Payment history – 35 percent
- Amount owed – 30 percent
- Length of history – 15 percent
- New credit – 10 percent
- Types of credit used – 10 percent
If you have a credit score under 620, you are likely to pay much higher rates on your mortgage loan. Here are a few things that can help increase your credit score to get approved for a home loan:
- Pay down credit card balances
- Pay student loans on time
- Pay all of your bills on time, including rent, car payments, and utilities
When you obtain your credit reports, be sure to check it for errors. If you notice an error, you can dispute it. Should you win the claim, this can be an easy way to increase your credit score.
Although many people can qualify for loans with lower credit scores, it is always better to take on the financial burden of homeownership if your credit score is healthy.
3. You Saved for a Down Payment
When buying your first home, you will need a down payment. This payment is a percentage of the total amount you’ll pay for your home. For example, if you purchase a home for $200,000 and put down 20 percent, you’ll need to save $40,000 for your down payment. It is recommended that homeowners put down 20 percent of their total home loan. However, you can negotiate with your lender for a lower percentage, such as 15 or 18 percent.
Second- or third-time home buyers have an advantage because they can use their home equity to put towards their down payment. When you buy your first home, you start to earn home equity, which increases each time you make a mortgage payment. If you sell your home, you can use your home equity to put towards a down payment. However, first time home buyers do not have this perk and will instead need to save up for a down payment.
4. You Have Met with a Home Mortgage Lender
Before you start house hunting, you should meet with a mortgage lender. They will help you get pre-approved for a loan, which allows you to have a better idea of the houses you can afford. In addition, many real estate agents won’t show you houses until you have met with a mortgage lender and been pre-approved for a home loan. When you meet with a home mortgage lender, you’ll need to bring various documents, including:
- W2s and paycheck stubs
- Two to three months of bank statements
- Two years of tax returns
- Proof of down payment
When you meet with a mortgage lender, you can also ask any questions and ease any concerns you may have about the home buying process. Even if you are still trying to decide whether it is a good time for you to buy your first home, it never hurts to speak to a lender to see if you are truly ready to purchase a home.
At First Fidelis LLC, we will help ensure your first-time home buying process goes smoothly. Call us today at (913) 205-9978 to schedule an appointment.