If you are in the market to buy your first home, it’s important to be prepared financially for what is most likely the biggest purchase you’ve ever made. Before you do anything, it’s essential to get a credit assessment to find out what your FICO score is. What’s a FICO score? You ask. It’s the number used by the majority of lenders to establish your loan eligibility and the potential risk involved in granting you a loan. Generally speaking, FICO scores above 650 (on a scale between 300 and 850) are favorable, and scores above 720 will get you the best interest rates on a mortgage. Factors used to determine your score are bill payment history, credit history, and the ratio of outstanding debt compared to your credit limit, among others. If your score is under 600, it may be beneficial to try to improve your credit rating before applying for a loan.
Although it may be tempting to borrow as much as your bank or lender is willing to give you, many financial planners say it’s best to keep it at 25% of your gross income. And when you are calculating that monthly payment, don’t forget to factor in other costs such as property taxes, or additional expenses that may come up later on. Things like home repair and maintenance can add up.
Those are just some of the basics for first-time homebuyers. And while we’re on the topic, here’s one more tip that has helped others in your position. Save up enough to cover the initial home purchasing fees and inspections. This may seem like a no-brainer, but if you aren’t prepared, closing day can be bitter sweet. So remember, in addition to having an appraisal and home inspection, you’ll need to pay closing costs and attorney fees. These rates fluctuate between regions, so the best idea is to talk to a real estate agent to find out how much you should anticipate saving.