There's nothing more exciting than owning a home. New Year’s Day has come and gone, and for many, there is a commitment to a New Year’s resolution. If your goal this year is to own a home, now is the best time to start planning. Buying a home is likely one of the biggest financial decisions you'll make, you want to ensure that you're prepared.
Here are five things you can do to prepare for buying your first home.
- Improve your credit score
Your credit score plays a large role in determining how much you’re approved to borrow as well as your interest rate. Before buying a home, review your credit report and dispute any inaccuracies.
If your credit score could use a boost, there are several things you can do to increase it, including:
- Paying off debt
- Paying bills on time
- Not opening new lines of credit
- Keeping credit utilization low, paying off purchases quickly
The higher your credit score is, the better loan terms you’ll get when it comes time to shop around for a mortgage. Even though it’s important to keep balances low, it’s important not to reduce your available limits or close down credit cards. Showing a lender that you have a low balance compared to your overall available credit will look much better.
- Start saving
Most mortgages require a down payment at the time of closing. This amount varies, depending on the loan you choose as well as your lender. The bigger your down payment, the less interest you’ll spend over the course of the loan.
If your down payment is less than 20%, you’ll have to pay default mortgage insurance. This is paid to the lender to offset the risk of you defaulting on the loan.
Give yourself a few months to save as much as you can so that you pay less towards interest over the next few decades.
- Set a budget
It’s all too tempting to browse house listings before knowing what you can afford. However, there’s nothing worse than falling in love with a home, only to find out that it’s way above your price range.
Before you begin house hunting, make sure you have a good idea of how much home you can comfortably afford. As a rule of thumb, your housing expenses shouldn't exceed 39% of your monthly income.
To get a rough estimate of how much you can afford, multiply your monthly income by 0.39.
- Get pre-approved
Getting mortgage pre-approval lets you know how much house you can afford; it also shows that you have your finances ready to go. Having a pre-approval letter is proof that you're serious about becoming a homeowner and should be completed before meeting with a real estate agent.
To get pre-approved, you'll need to complete an application and submit various forms of documentation, which could include:
- Bank Statements
- T4’s
- Letters of Employment
- Paystubs
- T1’s
- Notices of Assessment
Getting pre-approved not only saves you time, but it also increases your bargaining power as a buyer and reduces the risk of unexpected surprises along the way. If you’re ready to complete your pre-approval application, you can start it by clicking here.
- Hire a real estate agent
A real estate agent is a must-have throughout the entire home buying process. Your real estate agent will not only find homes that meet your wants, needs, and budget, they’re also available to answer any questions that you may have.
Navigating the process with a trusted real estate agent makes buying a home much more enjoyable.
Looking for a great lender in Alberta? At Mortgage Design Group, our mission is to give each customer a mortgage that best meets their needs. Our team of experienced mortgage brokers is here to help you throughout your journey to homeownership! Contact us today at (403) 942-4099.
