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How to finance your first home

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Purchasing your first home is an exciting time, but it can be full of hurdles. The path to becoming a homeowner can be overwhelming due to the complexities of the industry. There are numerous steps and requirements you need to take before settling and making a decision. Without taking the proper precautions, you could end up with more than you can chew. Luckily, you do not have to navigate the tricky waters alone. Read on for a brief guide of the steps needed to finance your very first home.

  1. Reflect and ask yourself, are you ready?

This is one of the most straightforward questions to ask yourself before you begin your home buying journey. Whether it is to live in a better location, freeing yourself from landlords, or having more space, plenty of people dream of buying a home. However, not many get the chance because of how time-consuming and confusing the process is or because they simply cannot afford it. Discuss this major decision with those in your life and ask yourself, is it a good time to move? You will want to also take a look into the primary and secondary mortgage market because they have a direct impact on the real estate in your area.

  1. Check your finances

To purchase your first home, you need to make sure your finances are in good standing. While you do not need a perfect credit score of 800 to qualify for a mortgage, it is recommended you have a score of 650 or above. If your numbers do not quite match up, it might be a sign for you to take a step back and reevaluate your endeavors.

Additionally, lenders will take a look at your debt-to-income ratio (DTI) before deciding your loan. Your debt typically encompasses unpaid credit cards, large student loans, and car loans. Ideally, you want to have a DTI of 43% or under. If you need help getting your DTI down, you can increase the amount you pay on your loans each month, pay off loans ahead of time, or refinance your loans.

Your financial circumstances also matter a lot when it comes to creating a successful mortgage application. For instance mortgages for company directors can be difficult, but with proper planning it is possible. 

  1. Save for a deposit

Although a downpayment is not always necessary to buy a home, it is preferred. Lenders want to see that you are in good financial standing and have the necessary means to afford the payments on your new house. Most homebuyers put down a 10% to 20% downpayment. Plus, the more money you put down, the lower your monthly mortgage payments will be, or the better interest rates you’ll have access to.

  1. Make a budget

Moving from an apartment to your first home is a big financial change. Your landlord might have included utilities like water and gas in your rent, so you never had to worry about that before. Now, you will have to include your mortgage, house insurance, utilities, and possible maintenance in your monthly budget. Making a budget will set you up for success and ensure you can afford a happy lifestyle.

  1. Research mortgages

Your mortgage is one of the most important pieces to buying a home. It is crucial to not settle for the first mortgage that becomes available. Thoroughly research mortgages and compare each one individually to make the right decision. In the long run, your wallet will thank you. Additionally, you can also get preapproved for a mortgage. This will not only make you a more competitive buyer but also allows you to have a more accurate idea of what your mortgage will look like.

As a first-time homebuyer, there are a variety of loans and programs that you can take advantage of to help you save money and make your dream home a reality.

In the UK there are lots of homebuyer schemes to help you afford and buy your first home, such as:

  • Help to Buy Scheme
  • Help to Buy ISA
  • Affordable home ownership sschemes

In the US, these are just a few of the resources available to you to help you buy a home with the possibility of 0 downpayment and low-interest rates:

  • Federal Housing Administration (FHA)
  • VA
  • State-sponsored first-time homebuyer programs
  • Good Neighbor Next Door

With so many great deals out there, purchasing your first home on a budget is achievable.

Final thoughts

Buying your first home is an enormous responsibility that requires plenty of research and planning. The more home buying knowledge you have under your belt for the process in your location, the easier it will be.