Are You Ready to Buy Your First Home?

red home key with house silhouette If you are preparing to become a homeowner, think about doing the following:

Establish or maintain three credit card/installment accounts with small limits never using more than 20% of the available balance. Alternative credit (rent, utilities, cell phones) may work, depending on the loan, too. A 24-month history is ideal. If you already have more than three accounts, pay down any that are above 50% of their available credit line, targeting 30%.

Check out your credit for free on line. If there are any discrepancies, fix them now.

Practice making a mortgage payment. Once you decide what your mortgage payment could be, pay the difference between the mortgage payment and your rent into a savings account and don’t touch it. Are you comfortable with that payment? What are you having to sacrifice to make it and is it worth it to you?

Save your money until you have enough for a minimum of 3% down payment/closing costs (if you’re going FHA or using a program like the Fannie Mae Flex) and have 3 months of mortgage payments left over in the bank after closing for your reserves…even if the lender does not require it.

Think twice before jumping around with your employment. Lenders like to see a minimum two year employment history without major gaps of employment. College, if it applies towards your current employment, can count towards your employment history. Salaried (W2) employment is much easier to document than commissioned, bonuses…etc. if you’re newly employed. If you’re self-employed and you want the best rate, lenders will require 2 years complete tax returns and will average your income for the past two years. So if you’re starting off, those first few years can be tough on the income department.

Don’t buy that hot car! Not only does having a new debt at 100% of the loan limit drastically ding your credit score–the payments just might disqualify you for any home you would consider buying.

Don’t use your good credit to cosign for a car or anything. It’s great being a good buddy to your friends. However, this goes on YOUR credit and you are responsible if they flake out. The payment is counted against you unless you can show 12 months cancelled checks from your friend for whom you cosigned and there may not be any late payments on the account.

Be prepared to buy a “starter home” and not your “dream home“. The great thing about starter homes is that as long as you take care of it, there will always be someone else who needs to buy one!