Interested in buying your first home? Here are steps you can take

(BPT) - Buying your first home is a major milestone which can seem overwhelming — especially financially. Whether you’re tired of renting, growing your family or just want a place that feels like your own, you can take simple steps to prepare for becoming a homeowner. Take time to get your financial ducks in a row before you start visiting open houses, so you'll be ready when it’s time to make an offer.

Here's how you can help the home-buying process go smoothly.

Start by looking at your financial picture

Take an honest look at your finances — including your income, expenses, debt and credit score. If someone is buying the home with you, have a candid conversation together about your finances to ensure your household is ready for a mortgage.

If you don’t currently use a budget, this is the ideal time to start. Use this helpful interactive budget worksheet from Vanderbilt Mortgage and Finance, Inc. to assess your current financial situation.

How to know how much you can afford when homebuying

Many experts recommend your mortgage payment be below 36% of your household’s monthly income. Remember, you may also need to pay for maintenance and home repairs you didn't worry about as a renter. To allow for unanticipated expenses, you may want to estimate your ideal mortgage payment at 28% of your income instead. You can use this monthly mortgage payment calculator to help estimate what you can afford and your projected monthly payment.

Next, you’ll need to start saving for a down payment. Choose a goal amount that correlates with your budget for a new home. This can range from 3.5% to 20%, although some areas offer programs with 0% down. Start by saving a small, specific amount every month, as it’s much easier to build a down payment over time. Consider using automatic deposit to put a portion of each paycheck into a savings account for this purpose. Finally, calculate your current debt-to-income (DTI) ratio, which estimates how much of your gross monthly income (money coming in before taxes) goes toward your monthly debt (money going out to debt payments). Your DTI ratio is one of the factors considered by lenders to determine the loan amount you qualify for. You can figure it out by totaling your monthly debt payments and dividing that by your gross monthly income (GMI). The lower your DTI, the less risky you will appear to lenders.

Get familiar with your credit score

When you're borrowing for a major purchase, it's helpful to review your credit score. You can view your full credit report online for free annually. The better your credit score, the better your loan terms and interest rate may be. Factors that affect credit scores include:

  • Payment history
  • Amounts owed
  • Length of credit history
  • New credit
  • Types of credit used

If your credit score is less than perfect or if you don’t have a credit score, you’ll need to give yourself enough time to work on improving it. For building on an already established score, focus on building credit by taking actions like:

  • Paying credit bills on time each month
  • Staying well below your credit limits
  • Pulling your credit report and checking for errors

You'll see positive change over time if you work on reducing late payments and/or resolving accounts in collection that appear on your credit report. Most people have debt, but your track record needs to show lenders you are timely with repayments and handle debt responsibly.

Consider off-site built housing when searching for your home

While today’s housing market can make homeownership seem challenging, there are new homes available at an attainable price point. For example, off-site built homes have an average price point of around $100,000. Better yet, off-site built homes can appreciate just as well as a site-built home.

Off-site built homes are also constructed with sustainable practices, which translates to lower build costs.

Vanderbilt Mortgage and Finance can walk you through the process of financing a home, or both land and a home. Visit VMF.com to apply.

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