Wednesday, February 23, 2011

4 Tips for First Time Home Buyers

A few tips for budgeting for your first home purchase.  If you are renting currently, and would like to own your home, you must start the process of budgeting a couple of years before you make an offer. 

1. Build your credit - The best mortgage rates are only available to buyers that have the perfect credit score.  Visit this website for a free annual credit report.  To get a good report - build some credit history by establishing a line of credit, pay the installments on time, pay bills on time, reduce or eliminate credit card debt.

2. Save Cash - You will need at least 3.5% for an FHA loan and 10% for a conventional loan.  20% down would help avoid PMI - private mortgage insurance - which would be a good goal to work towards.  Set aside money every month over and above the rent, so you get used to the extra payments like taxes, insurance and other expenses associated with home ownership.

3. Reduce Debt - Lenders will allow you to borrow only 40-43% of your income.  So if you have a lot of debt already - you cannot add more.  It is important to time your big ticket purchases like cars, or taking on credit card debt.  This also gives you some idea of the price range you can afford

4. Get Educated - Meet with a mortgage lender who will help you work those numbers.    Meet with a good Realtor to understand home prices and neighborhood values and discuss your requirements.  Talk to them about the home buying process.  Understand your current lease terms - notice required for termination, return of security deposit, penalties for breaking the lease etc. so you are not stressed and surprised when it is time to move.

More real estate advice articles in Bela Vora's blog.

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