Owning a home is a not just a decision, it’s a journey. And as you won’t leave for a trip without packing your bags, you should not embark the path to homeownership without having proper preparation for potential twists and turns.

If you want to buy a home in next couple of years, you should start planning from right now. Equipping yourself for the entire process will smoothen the road to owning a home.

Here are 5 essential tips towards easing your home buying process.

1. Create a budget – This is a tested method for planning and managing your personal finance. To prepare yourself to take out a mortgage makes it more needed to keep a track of your monthly income and outstanding debts as well. Proper budgeting helps you determine how efficient you are in handling mortgage payments and where your finance stands. The most efficient way to make a financial plan is to organizing your income into 3 categories – your needs, your savings and your wants. Don’t be restrictive though you should be realistic. Make sure you have at least some room for fun and entertainment as suggested by best real estate agent in Santa Fe.

2. Keep debt under control – You must work hard and smart to get a control over debts as the preface of home buying. Relation between debts and income plays important role in your capability to land a mortgage. The type of debt-to-income ratio you need depends on the mortgage type, lender etc. There are a number of debt-busting tricks and tactics. Some potential buyers emphasize high-interest debts while others strive to just paying a little more than the minimum every month on their credit card debts. You should rank your debts by the amount owed and pay off small debts first. This is called snowball method which helps many debts stay motivated. All you need to make a plan and strictly stick to it. Make sure you celebrate your victories while make required changes to the plan if you’re lagging behind.

3. Shape up your credit – Your credit score can make or break your chance of getting a home loan. Most lenders have a minimum credit requirement that may vary depending on the loan type. For a traditional loan, you need to have a minimum of 660 FICO score though you may need to have more score in avail best loan terms and rates. For government-sponsored FHA loans and VA loans, the lenders look for about 620 credit score. Paying down debts in time leaves a big and positive impact to boost up your credit. According to FICO, the amount you owe makes up about 30 percent of your score. As a potential homebuyer, you should also collect your free annual credit report and look for the errors and bad accounts as these could keep you from getting a credit as well as a home loan. You should always dispute any discrepancies.

4. Build savings for upfront expenses – Apart from earnest money, down payment, inspection charges and closing cost, you should also keep some money while heading towards homebuying process. Conventional lenders usually require 5% down payment though some are fine with as low as 3 percent. For FHA loans, you need to pay 3.5% as down payment. Even if you are into any down payment assistance program or zero-down loan backed by USDA or VA, then also you will need some liquid cash in hand for upfront expenditure. Lenders are likely to review your finances to confirm that your mortgage payment won’t leave you high and dry. Stockpiling at least six months of living would prove that you won’t go through any ‘payment shock’ even if mortgage payment gets added to your present budget.
5. Pay mortgage payment regularly – According to Santa Fe real estate agent, homebuyers with a strict price range may get a more realistic feel of how mortgage payments can hit their wallet. If you’re not so savvy, you can use an online mortgage calculator to have a rough estimate of your monthly mortgage payment amount. If it is more than your present housing cost, you must keep the difference aside every month in a separate account. Don’t touch that money and see what it is like to live without that money for a couple of months. It can help you as well as your budget be prepared for a life with a new mortgage payment.

Though following above-mentioned steps don’t ensure a perfect road to homeownership, proper preparation ensures a smoother journey down the lane.

Written by Alex Brain – Realty Times