As a Brooklyn mortgage lender, I have helped many first-time homebuyers prepare their finances before purchasing a home. It’s more than just coming up with a down payment and closing fees. Getting your finances in order ahead of time can often save a lot of headaches when you get to the mortgage processing point. I have some tips on how you can get your finances in order before you take that net big step.
Figure Out How Much You Can Afford
One of the mistakes I see new home buyers make is not taking the time to go over their budget and see what they can comfortably afford. I’ve seen buyers look at the home as an investment that they think they will be able to flip and sell on for a better price in a few years, so they stretch their budget too far. They then find they have to fix the home up before trying to sell it for a profit and are stuck with payments they are struggling to make.
My advice is to only buy a home that you can afford in the present. You want to keep those monthly mortgage payments under 30% of your gross monthly income.
Get Your Finances in Order
Another scenario I see often is a home buyer finding their dream home only to find they don’t qualify for the amount needed. It’s important to go over your credit report, fix anything incorrect, pay down any larger debts, and make sure your credit score is good. This gives you a better chance of qualifying for the home you want. Along with going over your budget, it also gives you an idea of how much you could get approved for and what your likely interest rates could be.
Tip: To improve your credit score, pay off credit cards and then don’t use them for a couple of months before you apply for your mortgage. Don’t apply for any new lines of credit or make large purchases either before or during the mortgage approval process either.
Save for the Down Payment
The down payment on a home can range between 3.5% to 20% of the home’s purchase price. The more that you put down, the better the mortgage and interest rate you will get. Starting to save a couple of years before you are thinking of actually buying a home is a good start. Put money aside for closing costs and any other costs that will be involved in buying the home, outside of the actual home price. It can be disappointing to think you can buy that $250,000 home with what you have, just to find that you need a few thousand for other costs, cutting down the amount you can actually put towards the house.
Get Your Paperwork in Order
When you apply for a mortgage you will need to show proof of income through bank statements, W-2 forms, pay stubs, and in some cases tax returns. If part of your downpayment comes from money that has been gifted to you, you will need a letter from the person gifting the money to show that it is not a loan that needs to be paid back. The best thing to do is call your mortgage lender and find out what paperwork they will require, and then bring anything else along that may be needed. It’s better to have more documentation than not enough.
Shop Around
Having your financing in order before you start looking for a home is important. You should start shopping around for a mortgage package before you start shopping around for a home. Getting a pre-approval is beneficial and could make the difference between getting the home you want and losing it because you left mortgage shopping to the last minute.
If you are looking to buy a home soon and need some advice on how to get your finances in order, give your trusted Brooklyn mortgage lender a call today.
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