Buying your first home is both exciting and intimidating. And before you fill out your mortgage loan application, it’s essential to get your finances in order. The largest group (roughly 14%) of U.S. homebuyers in 2021 had an average household income between $100,000 to $124,999, according to data reported on Statista.
Consider the tips below to ensure you have a smooth, affordable, and ultimately successful home-buying experience in 2023.
1. Credit Score
Your credit score is more than just a number. It’s an important part of receiving mortgage approval. Lenders will look at your credit score right at the start.
A credit score indicates to a mortgage lender how trustworthy you are in terms of paying your bills (and paying them on time). Requirements among lenders may vary, but the lowest credit score for a conventional mortgage sits at 620. Check your credit score before applying for a mortgage to know if you should pursue your home ownership goal now or take care of a few things first.
2. Debt Reduction
From school loans to car payments and credit card balances, your debt-to-income ratio gives lenders a realistic idea of how much house you can afford. This simple formula takes into account the amount of debt you have compared to how much income you make.
If your debt is cause for concern, it might be wise to tackle your credit card debt before you reach for the mortgage application. Reducing your credit card debt alone can actually boost your credit score, offering you a better chance at snagging a mortgage lender.
3. Save Money
You may have dreams of new furniture and décor for your new house, but this is not the time to go on a shopping spree. Now, more than ever, it’s time to buckle down and save your money.
The amount of money you need for a down payment will vary between lenders and depends on your location. It’s based on several different factors, but in general, the standard rule is to aim to put 20 percent of your home’s purchase price down at closing. While it’s possible to buy a home with less money down, other costs—like mortgage insurance—could be factored in.
4. Budget Friendly
Before you agree to a loan, carefully consider the dollar amount you’re comfortable paying each month. While you may qualify for a higher loan, is it something you can truly afford? What are your current priorities?
Make a budget. List your bills, your current debts, and any other expenses you have (such as dance lessons), so you can determine how much money you actually need at the end of the month. What do you need to live comfortably? Knowing this number will make it will be that much easier to commit to a home loan.
5. Trusted Lenders
Not all lenders are created equal. Shop around for an experienced mortgage lender. The money you’ll put down on a mortgage, and the rest of your closing expenses, are only a part of the picture.
What other perks does your lender offer? With many banks you can expect easy mobile-friendly payment options, one-time or recurring payment scheduling, email notifications, and the ability to set up more than one payment with any one user profile.
The Bottom Line
Keep tabs on your credit score, work to pay off your debt (especially credit card debt), stick to a budget, and partner with a trusted bank. With these tips, new and existing homeowners can enjoy a smooth home-owning experience at every stage in their lives.