1. Get Ahold of Your Finances!
I’m sure the thought has crossed your mind that you could pay a mortgage on a house that is less than your current rent. This is true; however, homeowners have more expenses than renters do. Paying down any outstanding credit card debt or loans is a great place to start. Also, think about saving a three-month emergency fund, so when unexpected costs do arise, like a leak in the roof or a broken washing machine, you won’t be wondering where that money will come from. A six-month saving is even better and will hopefully eliminate some of your white hairs!
2. Check Your Credit
Your credit score can be a major factor in determining the type of mortgage and interest rate that you can qualify for. If you can get a free copy of your credit report, you can look through it for any errors that you may be able to dispute. As you move forward, do not apply for any other credit cards or loans, as these can be red flags.
3. Down Payment
Once you’ve paid down your debt and have your emergency fund ready, you can start saving for your down payment. Your downpayment amount will depend on the amount of your mortgage loan. Convention loans require a minimum of 3% down, FHA is a minimum of 3.5% down, and USDA and VA loans require 0% down.
4. How Much House Can You Afford?
Talk with a mortgage lender. They can give you a rough estate of how much you can afford without pulling your credit. They will look at your income and monthly expenses. If you aren’t ready to chat with a lender quite yet, a good tip to remember is your mortgage payment shouldn’t be higher than 30%of your monthly income. Here are two local lenders on Kauai that I recommend.
5. Closing Costs
“I have my down payment saved; I am ready to start looking!” This is something I hear often. Most first time home buyers forget they need to save a nice chunk of change for their closing cost. Closing costs are fees and charges due at the closing of a real estate transaction. Closing cost over things like your lender fees, escrow fees, appraisal fees, homeowners insurance, property taxes, etc. I have an entire blog post about closing costs if you want to read more about this topic.
6. Stay on Budget
Buying a home should not feel like a financial burden. Resist the temptation of going to Home Depot or, in my case, Target to buy all of the home decor, house plants, and power tools that you’ll need to make the house you’re potentially buying feel like a home. Remember, you do not want to make any big purchases or change your job in the middle of the home buying process. It is important to stay consistent.
I am not going to lie and say the home buying process is easy. There is a lot of stress and emotion involved when making one of the biggest purchases of your life. Choosing the right realtor and lender is important and can save you a lot of gray hairs. You will be in constant contact with this person for at least two months, so make sure it is someone who knows how to set healthy boundaries, shares the same values as you, and fits your family’s lifestyle.