Congratulations on your decision to become a homeowner! It’s a memorable, self-fulfilling experience that will create the foundation on which you can build your life. But with this experience comes a great deal of responsibility, which is why it’s important for first-time homebuyers to consider the following.
Check Your Credit
Before you even think of submitting an offer to buy a home, you should first check your credit. Just because you’ve paid all of your bills on time doesn’t necessarily guarantee a flawless credit history. There could be past-due accounts from several years ago, and such marks will often remain for up to 7 ½ years before they are removed. Furthermore, there’s the possibility of identity theft, as someone may have taken out a loan or applied for a credit card under your name and Social Security number.
Debt-to-Income Ratio
What’s your debt-to-income ratio look like? With the your home’s mortgage factored in, your expenses should be below 28% of your gross (pre-tax) monthly income. If it’s greater than this amount, you could have trouble paying your bills.
There are ways to improve your debt-to-income ratio, such as consolidating your bills, eliminating unnecessary expenses, and/or increasing your income by getting a new full-time job or second job. Even with a second job there could be stability questions.
Closing Costs
Many first-time homebuyers are shocked to learn just how much the closing costs can be. It’s not uncommon for buyers to pay several thousand dollars in closing costs alone, which doesn’t even account for the down payment.
Some seller and real estate agents may be willing to negotiate the closing costs. One tactic is to agree to buy the home under the condition that the seller pays either all or a portion of the closing costs. If the seller is struggling to find a buyer, he or she may agree. Besides, the worst that can happen is they’ll say no.
Make a Nest Egg
If you haven’t done so already, create a financial nest egg by tucking away your extra money at the end of the month. Some financial advisers recommend keeping at least 3-6 months worth of income in a savings account specifically for hardship. If you get laid off of work, have unforeseen medical bills, or other financial hardship, you can use it to pay your mortgage. Hopefully, you will never have touch your financial nest egg, but having it will give you peace of mind knowing that you can pay your bills.
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