Buying a home for the first time requires you to do your due dilligence and learn about the process of home buying, which involves assessing your personal finances to ensure that you qualify for a home loan. Doing this puts you ahead, making it easier for you to navigate the home buying process.
Here’s everything you need to know about qualifying to purchase one of the biggest investments you’ll ever make in your life:
- Have a steady and reliable income
The most important thing you need prior to applying for a home loan is a steady and reliable income. Purchasing a property is a long-term commitment and having a monthly salary will ensure that you can afford your mortgage repayments and other costs associated with homeownership.You could consider buying a property to rent out as a way to generate income. For further information on buy to let properties check out this guide by property investment company RWinvest for the latest tips.
- Apply for prequalification
Prequalification gives you an idea of the types of homes you can afford. Consult a prequalification service so that you can make your house hunting process much easier by knowing what types of home are in your range and which aren’t.
- Make sure your credit score is above 600
A credit score is a 3-digit number that is calculated by credit bureas and is based on an individual’s financial history. The higher your credit score, the better your chances are of being approved by a lender because it shows that you’re likely to be reliable with repaying your debt. If your credit is too low, you’ll have to take the necessary steps to improve it.
- Improve or maintain your credit score
If you need to improve your credit, make sure you reduce the amount of debt you have and don’t take on more debt than you’re able to manage. You should also pay your bills on time and scan your credit report for any discrepancies that you can dispute. If you have no credit history at all, opening a small credit account like a cellphone contract or store credit can help you fatten up your credit profile.
Maintaining your credit score involves not making big credit decisions prior to applying for a home loan, keeping your credit utilization under 30% and using credit monitoring services to track your credit score.
- Save up for a deposit
Typically, the deposit on a property is 10% to 20% of the purchase price. You can pay this amount or choose to make it higher (which is favourable because a higher deposit means a bank is more likely to approve your home loan. This also equals lowers interest rates).
If saving up for a deposit isn’t feasible for you as a first time home buyer, consider applying for a 100% home loan instead, which is a product created by lenders to cater to new buyers that may not have the money for a down payment.
- Make an offer to purchase (OTP)
After you’ve found your dream home, the next step is to make an OTP agreement which states what the conditions of the sale are. A real estate agent should be able to help you in this regard and it also doesn’t hurt to have an attorney look over it to make sure that you haven’t missed any important points.
You should also keep the 72-hour clause in mind, which states that a seller can continue to market the property even after accepting the OTP. Should they receive a more attractive offer, they’re entitled to give the initial buyer 72 hours to fulfill all conditions of the OTP otherwise the agreement will be automatically cancelled, allowing the seller to sell to the buyer with the better offer.
Using the points above, first time home buyers can equip themselves with the knowledge needed to navigate qualifying for their first home loan.