What You Need To Know Before Getting Your First House
If you're excited about shopping for your first home, there are a few things you can do to get your financial health in order. Arming yourself with the right financial knowledge can help you to avoid many of the pitfalls first-time home buyers succumb to.
At first glance, a credit score is how a lender will evaluate your financial health. The minimum score required to get a FHA loan is a 620. The higher your credit score, the better your interest rates will be for your mortgage. Your credit score is weighed on the following factors:
- On-time payment history
- How much you owe
- Length of your credit history
- How many lines of credit you have
- How many times your credit report has been pulled
You're able to request a free credit report once per year from each of the three credit reporting bureaus here. While your score isn't available on these free reports, these reports can show you what lenders see when they pull your report.
The Difference Between Being Prequalified and Preapproved
When a lender tells you you're prequalified, it's their best guess. Being prequalified for a loan means that the lender has made an estimate of how much you could be eligible to borrow. However, you can still be turned down for the loan after they look into your documentation.
The real power in shopping for a home comes with being preapproved. Being preapproved for a home loan means that the lender has gone over your documentation and has determined how much they're willing to lend you. You will also be given an idea of how much interest you'll be expected to pay on the loan.
How Much House Can You Afford
Knowing how much house you can afford is more than just getting a mortgage and buying a house. In order to figure out how much house you can afford, you have to take in several factors:
- Mortgage payments
- Average utility cost in your area
- Future financial goals
- Home owner's association costs
- Property taxes
All of these items will factor into how much home you can afford. There are many hidden costs in homeownership and taking the time to add in any additional taxes and fees will help you have a firmer concept of whether a home is in your price range or not. Taking the time to weight these factors in to your decision-making process will help you to find the home you're looking for, without breaking the bank.
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