Getting ready to buy your first home?
Buying a house isn’t something most people do on a whim. It takes planning and usually years of saving for a down payment. So whether you’re considering buying a house in six months or five years, here are a few steps to help you prepare for buying your first home.
Take a look at your finances
Before you fall in love with listings on Zillow, it’s wise to take a good look into your financial health. Your financial health encompasses your income, savings and expenses.
Auditing your finances will show if you are in a good financial position to buy a house and, if so, help you determine your budget. It may also indicate that you should hold off on buying for a few years to save and repair your financial health.
Review your credit
Second to auditing your finances is reviewing your credit report. If you plan to finance a home through a mortgage lender, you should know your credit score and how much debt you have.
Your debt-to-income (DTI) ratio affects your credit score, which ultimately helps mortgage lenders decide what size loan to offer and at what interest rate. Ideally, your DTI ratio should be less than 35%.
Understand the extra costs of buying a home
When buying a home, it’s important to recognize the associated costs beyond a house’s sticker price. These can be split between up-front and ongoing costs.
- Down payment
- Closing costs
- Mortgage payments
- Property taxes
- Homeowners insurance
- Private mortgage insurance (PMI, if applicable)
- HOA fees (if applicable)
- Home maintenance
Some of the ongoing costs, like property taxes, homeowners insurance and PMI, may be bundled into your monthly mortgage payment if you have an escrow account. Some mortgage types require an escrow account, and with others, it may be optional.
While buyers may have less say in property taxes and PMI, you can choose your homeowners insurance policy. The average homeowners insurance premium is about $1,400 per year but can be as low as $1,230 or as high as $2,260. As a first-time buyer, it’s wise to compare insurance companies before purchasing a policy. Check out The Zebra’s guide for first-time homeowners insurance, which recommends low-cost providers and offers steps for purchasing homeowners insurance for the first time.
The table below offers quick resource links for each state’s housing authority and homeowners insurance information, such as average rates for specific insurance companies and cities.