There is nothing more fulfilling than making your dream home come true. As you can see, a house is one of life’s biggest investments. It is where you’ll stay for good, start a family, and carve your future.
But making your dream house come true all boils down to your finances. You must be financially prepared and ready for your home-buying endeavor. As early as now, you must have a source of income or seek financing for your home purchase.
To kick off your home-buying journey, here’s how to financially prepare:
1. Have a stable source of income
Your source of income is crucial to your home purchase endeavor. You can have a steady and stable income through either your employment or business. Most home buyers would assess their monthly income before taking the plunge. Even if you seek funding from a lender, you must ensure you can keep up with your monthly payments. Know that lenders would factor in your financial capability to pay in the long run for mortgage approval.
2. Save up
Whether you earn through your business or employment, the best course of action is to save up. Don’t take the plunge into a home purchase if you don’t have enough money in your bank account. Even if you get approved for a mortgage, you’ll need a certain amount of money for the down payment and closing cost. Therefore, set a financial target to meet before you jump-start your home-buying journey.
3. Check your credit standing
Another crucial factor to consider for your home purchase is your credit standing. It’s best to obtain a copy of your credit report from the credit bureaus such as TransUnion, Equifax, and Experian. Check to see if you have a good credit score with a remarkable credit history. For conventional loans, most lenders require a FICO score of 620 or higher. Unless a non-conforming loan or a government-backed loan, you only need a minimum credit score of 580.
4. Look for a lender
Now that you’re financially ready to purchase a house and lot for sale at a low price, you can start to look for a lender. Know that banks and financial institutions offer home loan options. Private lenders provide conventional loans which follow stringent guidelines set by the government-sponsored enterprises: Fannie Mae and Freddie Mac. On the other hand, government-backed lenders offer non-conventional loans such as the Federal Housing Administration (FHA), Veteran’s Administration (VA), and US Department of Agriculture (USDA) loans.
5. Get a mortgage preapproval
A mortgage preapproval entails approval for a home loan provided by a lender before an actual home purchase. You’ll typically receive a preapproval letter showing an estimate of how much you can borrow. This letter demonstrates your ability to secure a loan, which you can present to a home seller when you’re ready to make an offer. It’s best to get a mortgage preapproval first before taking the plunge. To do so, be sure to submit pay stubs, bank statements, tax returns, and other paperwork. Your lender will consider all these before making an approval.
6. Have some cash lined up
It’s a good move to have enough cash to pay upfront. The more you pay for the deposit, the lesser you’ll borrow for a mortgage. It means that the higher your down payment is, the lower your monthly contractual payment (MCP) will be. Also, you won’t have private mortgage insurance (PMI) to pay as part of your MCP. If you opt for an escrow account, you’ll only have to pay for your property taxes and homeowner’s insurance. Ultimately, don’t put out a hefty down payment as you need to consider the closing costs and other miscellaneous expenses for your home purchase.
7. Work with a real estate agent
When it comes to a home purchase, it’s best to work with a real estate agent. This expert professional has real estate knowledge, negotiation skills, a field of expertise, and industry experience. They can help you financially prepare and even save up on your home purchase. They can also assist you in finding the right lender and getting the best mortgage deal. Ultimately, they will have your best interest in mind, helping you realize your dream home!
Making your dream home come true
Buying a house is indeed fulfilling and rewarding. To be financially prepared and ready for a home purchase, be sure to consider our financial recommendations above. With all these in mind, you’ll be able to buy or finance your purchase of a residential property. Ultimately, you’ll be able to make your dream home come true.