First-Time Homebuyers Guide - Part I

Buying your first home is probably the most stressful thing you'll ever have to do. I am finding I am constantly going back and forth re-tweaking numbers; I wish someone made a list of things to do before even talking to a realtor! Hopefully you can benefit from this series of articles on how to buy your first home.

Our goal at the end of this section is to have three numbers: your credit scores, the maximum monthly mortgage payment you are comfortable with, and a pre-approval letter that has your maximum that is allowed to be financed.

Get Your Credit Report

I've already told you how to obtain your free credit report, so this part should be easy. Get your three credit reports and resolve any disputes on them.

Set Your Budgets

Before spending any money, you should always know how much you have to spend. If you are online savvy, set up a personal finance account at any reputable institution (I use MoneyCenter, but it's not user friendly, beginners should try Quicken or Mint). These sites become your electronic balance sheet and are like accountants who never forget. Enter in your bank accounts and credit cards and they do the rest. You can see pretty graphs of your income, expenses and categorize where you spend your money. Do this now, so by the time you are ready to write up an offer, you are confident you can afford the payments.

Your goal in this step is to come up with a number you are comfortable in paying each month for your new house. Keep this number in stone! This number should work out to be around 35% of your Take Home pay for the mortgage and no more than 45% of your Take Home pay for all reoccurring monthly debt (mortgage, student loans, car loan, credit card minimum payments).

Now is the time to start paying off credit card balances, start consolidating student loans, and reducing monthly payments.

Get Pre-Approved for a Mortgage

With your past few months finances and your credit reports printed out, I recommend physically going to a bank and sitting down with a mortgage lender. This is only a dry-run! Do not sign anything, just ask for a pre-approval letter. Tell the mortgage lender what you are comfortable in paying as a max payment each month (the number you calculated in the "Set Your Budgets" section) and s/he will do some math and give you a preapproval letter for a certain purchase price and amount that is allowed to be financed. This is not the last pre-approval letter you will get, it's just a start, our maximum.

Now that you've all this, let's continue on to Part II of Buying Your First House.


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