There are certain milestones that mark important times in our lives. Sitting in car for the first time all alone with our new driver’s license, walking across the stage at graduation, completing college or beginning our first full-time job. These all make us take a pause and feel a huge sense of gratification.
Part of the American dream is to become a homeowner. We dream of a place that we can call our own. A place that is comfortable and safe. A place we are proud of. A place where we can plant the roots for our future. To some however, the process seems so overwhelming and the concern of whether or not you are “doing it right” deters some from achieving the goal.
So how do you know if you are ready to become a homeowner?
Here are six areas you will want to consider that will make your decision to buy a home the right one.
1. Are you ready to settle down?
Not to say that you will never move again, but take a look at your current life-stage.
Do you have a steady income? Are you looking to be in your current job for a while? Are you ready to start a family? Are you ready for the responsibilities of home ownership? Are you ready to use some of your skills, or maybe the skills of a family member or friend and make a property your home? If you feel you are ready, it’s time to make a list of the things you must have in a home. How many bedrooms? How many square feet? How many bathrooms? Ranch or split level? 1,2 or 3 car garage? How much yard? Town or country? How far from work? School district?
All are very valuable first questions that you need to evaluate. Homes can serve as one of the first investments in young people’s lives. With a little work and TLC, making a house your home is a goal many young people have. It’s a big responsibility, but if you know you are emotionally ready and are willing to do the preparation work to make sure you are financially ready, this will be a great move for you.
2. Is your credit history good?
Though it is a good idea to always stay on top of your current credit situation, if you are interested in homeownership, it is a great excuse to do it now. If you have blemished credit or the inability to make down payment it might get in the way of your plans. That’s why it pays to look at your creditworthiness early in the home-buying process. Get your free annual credit report at www.annualcreditreport.com, and comb through it for errors and unresolved issues. It is also a great way to have an opportunity to do some credit “clean-up” if there is anything in your credit score or rating that might be holding you back. If you find mistakes, contact the credit reporting bureau to make sure they are corrected.
3. Do you have all your documents ready?
Collect pay stubs, bank account statements, W-2s, tax returns for the past 2 years, statements from current loans and credit lines, and names and addresses of your landlords for the past 2 years. Have them ready to share with a potential lender such as your local credit union. This may seem like a lot, but in this age of tight credit, don’t be surprised if your lender needs a lot in the way of documentation.
4. Find lenders and get pre-approved.
Getting pre-approved for a mortgage helps you bargain from a position of strength when you are house hunting. The institution where you bank and a local credit union are good places to start your search. Being organized with all your documentation will put you in a position where lenders can offer the best rates in your area.
Applying to multiple lenders in the same month helps increase your chances of getting a loan approved at the best rate possible without dinging your credit score too much. So set up a meeting with a loan agent and lay out your financials with them. They will help you work within the recommended 28% of your gross income that you can typically get approved for. They will help you see where you are financially and determine what would be the best price range or you to consider.
This will also allow you to limit your house hunting to the appropriate price range. Having this pre-approval not only saves you time in your house hunting process, but it will also make you a “preferred buyer” in the eyes of a seller since you already have your financing locked in. Real estate agents appreciate the efforts to get this done as well and makes their job of helping you locate properties much easier as well.
5. Have you looked at the houses that are available?
Talk to reputable Realtors in your area about the real estate climate. They will have insight into the current market in the area you are interested in. They will know what’s available and often times can have insights on properties that are not yet officially on the market. Of course there are commissions that realtors earn and you can seek online resources to find potential homes. Realtors, however, can help with the all the paperwork from offers to counter offers to the closing. Their insight can be a huge advantage.
Keep in mind that if this is your first home purchase, your “dream home” may not be out there because of your current financial status. Finding something in your price range that may need a little work is probable. Always remember, paint and some new flooring can go a long way in making it more comfortable.
Your efforts to make the house a home will give it that feel you are looking for. At the same time always remember to look at the big picture. While buying a house is a great way to build wealth, maintaining your investment can be labor-intensive and expensive if you let it be. When unexpected costs for new appliances, roof repairs and plumbing problems crop up, there’s no landlord to turn to, and these costs can quickly drain your bank account.
6. Do you know how a mortgage will impact your budget?
You could use a mortgage calculator from your local credit union to get an idea of what your monthly mortgage payments would be if you bought at a certain price. Find out what your total monthly housing cost would be, including taxes and homeowners’ insurance. Another area that can surprise new home buyers is how much you’ll likely pay in closing costs. The upfront cost of settling on your home shouldn’t be overlooked.
Closing costs include origination fees charged by the lender, title and settlement fees, taxes and prepaid items like homeowners’ insurance or homeowners’ association fees. Any information that would make this purchase fit your wallet, bank account and future better is recommended. It will be a major purchase, but if done correctly and within your budget, it will be one of the best financial decisions you can make.
Home ownership is a huge step. If you are ready to make the commitment and have the financial means to do so, congratulations. This part of the American dream is possible with the right planning, preparation and maybe some old fashioned hard work. Stay on top of your financial well-being and always remember the value of your local credit union in making this a reality. When you pull into your driveway after the closing with your house keys in your hand, take a moment to take in what you accomplished.
Ready to get started?
If you live or work in Southern Illinois, the mortgage professionals at SIU Credit Union would be happy to help you on your path to home ownership. You can set up a meeting at either our Carbondale or Marion locations to begin choosing from a variety of conventional mortgage options. Give us a call at 618-457-3595, ext. 3501 or visit our website for more information.
Membership required. Equal Housing Lender. All loans subject to credit approval. Federally insured by NCUA.