Taking the plunge into home ownership is a big one. For many people, it will be the single largest investment of their lives. To prepare yourself for home ownership, there are steps you should be taking well before you ever first contact a Realtor to show you that first house. We’ll deal with a few of these here.
1. Get yourself a good credit history.
Unless you are independently wealthy, you will need to take out a loan to buy your house. You should begin as early as possible. Get yourself a form of revolving debt, like a credit card. Use it for purchases and pay it off quickly. This alone will show that you are responsible with your debts. Choose a low-fee card for this, and keep it forever. The length of time an account is open adds to your credit history.
2. Save for your down payment.
To qualify for the best mortgage rates, most banks want to see a loan to value ratio of thirty percent. That means if the house you want to buy costs $100,000, you’ll need to put $30,000 of your own money up as a down payment, and the bank will give you the other $70,000.
When you apply for your mortgage, your bank will be checking your financial history to see that you had that money in one of your accounts before applying for the loan, and you didn’t get it as a gift from a family member.
3. Find out how much house you can afford.
Most banks will look at your current earnings and figure that you can pay up to 30% of your gross monthly earnings toward a mortgage. So if your salary before taxes is $75,000 per year, the highest mortgage payment you could afford is $1,875.