Purchasing a home is a huge accomplishment but many people do not even know where to begin. Without proper guidance, it can seem overwhelming, so we created this quick guide to help you prepare for how to purchase a home.
Since this is the largest purchase most people will ever make, it is very important to take the proper steps and be fully prepared. We want to make sure you get the best financing possible, and for your new home to be a blessing and not add any unneeded stress in your life.
Budgeting is one of the most important things about preparing to buy a home. It ensures you are taking responsible steps to prepare and also helps with being a successful homeowner in the future. Here are two important budgets that you should create.
The first budget will be focused on your home preparation process, which will help with how to save for the home and mapping out the entire plan. Start by figuring out when you will want to purchase your home and then how much money you will need to save for a down payment. Let’s say that you would like to buy a home in 24 months and you will need a total of $30,000 for the down payment and closing costs, this means that you will need to save $1,250 per month in order to reach your $30,000 goal.
The second budget will focus on your ideal life after your home purchase. When purchasing a home, many people do not think about their budget after the purchase and what becoming a homeowner may mean. There can be added maintenance and unexpected costs, so it is important to budget extra money towards saving for emergency home repairs. Also, remember that by becoming a homeowner you will not only have to pay for the mortgage with Principal and Interest payments, but also Property Taxes and Homeowner’s Insurance. What are your passions, do you like going out to eat or perhaps traveling? Factor all of this into your future budget so you do not become “house poor” and not able to afford those things you enjoy. Proper planning will lead to a happier future.
Budget items to think about:
- Total homeownership costs: Principal, Interest, Taxes, Insurance, Utilities, Maintenance
- Fun, Entertainment, and Travel
- Children or Pet expenses
- Vehicle Expenses
- Health and Insurances
- Savings Goals
- Food and Necessities
- Other Debt Obligations
- Subscriptions and Misc
Did you know that there are down payment options that allow as low as 3% - 0% down payment? You may have to pay more than this to cover closing costs as well, but all of this plays an important part in planning. Analyze your details with both less of a down payment and more of a down payment so you can see how this affects your purchase ability, affordability, and total monthly payment.
Mortgage insurance will often be required with low down payment options so this is something to also factor into your overall analysis.
In general, making sure your credit is above a 620 credit score is preferred. There are some special programs that may apply to lower credit scores, but better mortgage programs, interest rates, and loan terms can be obtained as your credit score goes up. Ideally, your target score should be above 720 if possible.
When getting a mortgage, it is also important that you have a past credit history. Some people try to avoid credit at all costs, but this can actually hurt your ability to get qualified for a mortgage. Mortgage companies look for at least 3 pieces of credit to show your history. This can be things such as credit cards, car loans, student loans, personal loans, other mortgages, and anything else that might show on your credit.
When looking to get a mortgage for your new home purchase, employment history is closely reviewed. The big number for employment is two years of history whether you are self-employed or a W2 employee with a company.
The two years of employment history can be at different jobs, but it should be steady employment with limited gaps between any jobs. In addition, if your college education aligns with your job duties, you can use some of your time in college to apply towards that two years of history.
Any employment that is sporadic and pay that is unreliable will most likely not be counted in your qualification analysis. Future employment that is not projected to continue will also not be able to be included in your employment or income analysis for qualification.
Common Needed Documents:
The mortgage process when purchasing a home involves the submission of personal and financial documentation to support the mortgage approval process. It is important to understand what may be needed from you so here is a brief overview.
- 30 days’ worth of latest paystubs – this is used to show the most recent income and year to date income.
- 2 years of latest Tax Returns – this is used to review income history for the past two years.
- 2 years of W2s – this shows what income over the past two years came from where.
- 2 months of most recent Bank Statements or Asset Statements – this will show that you have the funds for your down payment and closing costs ready.
- Other potential documents that may be required if applicable: divorce decree paperwork, proof of citizenship status, business tax returns, 1099s, paperwork for any other property owned, and more.
These key tips will help make sure you are confident and prepared for your future home purchase. We want to help make sure your home purchase is a low stress and enjoyable experience. As you move forward on your home buying or mortgage journey, we will be here by your side. At West Coast Mortgage Group, we strive to be the best we can be and educate our clients in each stage of the preparation process.
With over 16 years of residential mortgage experience, West Coast Mortgage Group has mastered the art of helping clients through the loan process and into successful homeownership. We are here to answer any questions you may have, and our team is here to assist you with your home purchase, mortgage refinance, and mortgage planning. Call us at any time for a free live consultation or schedule a meeting today!