4 New Year’s Resolutions for First-Time Homebuyers
2023 is around the corner, and everyone is setting goals and writing out their resolutions. Do your goals include buying a home for the first time? If so, you probably already know there are some steps you have to take the get there. You’re probably aware that you need to qualify for a mortgage, hire a real estate agent, and of course, find the perfect home.
For first-time homebuyers, that first step can be the most difficult. Especially with the fear of higher interest rates driving monthly payments up, many first-time buyers are struggling with affordability. Mortgage requirements can be tough to meet, so if your 2023 goals include buying a home for the first time, we suggest you make the following 4 resolutions.
Resolution #1: Pay Down Debt
Your debt impacts the size of the mortgage loan you can obtain. Lenders want to see a debt-to-income ratio of 43 percent or lower, with 50 percent or higher disqualifying you for loans with more attractive interest rates. To make the debt reduction process less intimidating, focus on one credit card or loan at a time while continuing to make your minimum payments on other cards or loans.
Which debts should you pay off first? That depends on your strategy. The most tried-and-true method is to pay off the ones with the highest interest rates first (again, while continuing to make minimum payments on other debts). Store credit cards usually have the highest interest rates, followed by credit cards, personal loans, and other installment loans like auto and student loans. Check your cardholder agreement or loan terms for the most accurate information.
Resolution #2: Save for Your Downpayment
Any list of first-time home buyer tips should include saving for a downpayment. Once reduced your debt, you can focus on gathering the necessary funds for this crucial step. Downpayments can range from a mere five percent for first-time homebuyers to over 20 percent of the home's value. The more you can put down, the better your debt-to-value ratio—and the lower your monthly payment will be.
Another bonus of paying more upfront? A downpayment of less than 10 percent might require you to purchase mortgage insurance. If you can pay more now, you’ll save more in the long run on interest and mortgage insurance.
How can you save for a downpayment when you likely have to pay rent at the same time? Look to the common saving tips like budgeting, cooking at home, and spending less on non-necessities.
Still in doubt? Ask a real estate agent! We have connections with local lenders, and if you tell us more about your unique situation, we can point you in the right direction.
Resolution #3: Avoid Large Purchases
If you’re trying to buy a home for the first time, you’ll want to steer clear of large purchases in the meantime. You’ll need as much money as possible for that downpayment, and spending it on a vacation, new car, jewelry, or another nonessential item only sabotages your effort. Making those purchases with a loan or credit card can prove especially problematic. You can't lower debt while adding new debt to the ledger.
Resolution #4: Avoid Starting a New Job
New Year's resolutions typically include significant lifestyle improvements, including a career change or a new job. You might assume that a better position at a higher salary would make you look more attractive to mortgage lenders. However, lenders require applicants to maintain their current job for a minimum period to indicate their financial stability.
What can you do if you must switch jobs while buying a house in 2023? You can mitigate the potential damage to your loan prospects by remaining in the same industry.
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If you plan to buy a home for the first time and want to do it right, you'll benefit from personalized guidance and expertise—and we can provide it. Get the year off to a brilliant new start in your ideal home.