Updated: Mar 27, 2020
Understand your Home Buying Budget
Know how much you bring in on a monthly basis (you and any co-buyers)
Tally up your monthly expenses and debts
Assess your savings
Most experts recommend spending no more than 30% of your income on housing.This rule can help you determine an appropriate monthly payment that fits your budget. Keep in mind there will also be additional costs that may come with being a homeowner, like maintenance and repairs, utilities, property taxes, mortgage insurance, homeowners insurance, and more
Gather the Down Payment
Keep in mind that you’ll need to have a certain amount of cash on hand to fund your home purchase. In general, you’ll need a down payment, normally 3% to 20% of the purchase price. You willl also need cash to cover closing costs, which can usually add up to another 2% to 5%.
Your required down payment will depend on the type of mortgage loan you choose. FHA loans require as little as 3.5% down while conventional ones generally require at least 3%. In order to qualify for the best mortgage rates and save more money, however, you may need to put down as much as 20%.
There may be some exceptions. If you qualify for a VA loan (for veterans and military members) or a USDA loan (for homes in eligible rural areas), you may not be required to come up with a down payment at all.
During your homebuying journey, your mortgage lender can tell you the type of loans you may be eligible for and the down payment that’s required for each. I have a great lender to connect you with if you would like to start your process.
Get pre-approved for a mortgage
Lenders will require you to submit some paperwork to show that you can afford to make your monthly payment. This documentation can take some time to assemble so you can start collecting these papers now:
Two years’ worth of tax returns
Your recent W-2s
Your most recent pay stubs from the last 30 days
Your two most recent bank account statements
Other asset and investment statements (401(k)s, bonds, stocks, etc.)
If you have everything organized ahead of time, you can potentially close on a loan within weeks. Once you submit this, your lender can give you a pre approval letter. Buyers with a pre-approved mortgage can close on any property in their price range that meets the lender’s requirements. Having this ready to go shows sellers that you are serious!