How to prepare for buying your first home
Buying your first home is an exciting step in your financial journey. If you’re considering making this significant purchase, it’s helpful to take a look at each stage of the home-buying process before searching real estate websites or attending an open house.
Stage one: How much can I afford?
Before you start looking at homes too seriously, Jared Friesen, Consumer Lending Officer at SCU, recommends starting with a preapproval meeting. That way, you’re starting the home-buying process knowing what you can afford.
“When you come in for a preapproval, the question should never be ‘What will you give me?’” says Friesen. “Instead, you should be asking, ‘How much can I afford while maintaining my lifestyle?’”
There are two important factors lenders look at when deciding how much you can afford to borrow. First, they look at the percentage of your gross income (income before taxes) you plan to spend on housing costs. This includes your mortgage, property taxes, home insurance, and general home maintenance. Ideally, you want to stay below 32 percent — that way, you won’t extend yourself too much.
The second factor lenders look at is the percentage of your gross income you’ll be spending on your total debt (total debt ratio). For most homeowners, this shouldn’t exceed more than 40 percent. “However, I’d rather have homebuyers aim for 30 percent so they’re able to put money into savings at the same time,” says Friesen.
Stage two: Are the items on my list needs or wants?
Once you’ve had your preapproval meeting, and you’re ready to start looking for your home, Friesen says the next step is to determine your needs and wants.
“If everything on your list is a need, you may only find homes at the top of your budget or higher,” he says.
Instead, figure out where you can compromise, and decide on financial deal breakers. Are you more concerned with the size of the kitchen, or a shorter commute to work? What’s the most you can afford to spend on a home? Keep in mind that as you grow financially, some of your wants will come in time — which is why you shouldn’t expect them all in your first home.
Stage three: What are my next steps?
At this point, you’ve found a home, signed the offer to purchase, and the keys are now in your hands. Now what?
According to Friesen, the first year of living in your new home is a time for you to compare your projected expenses with your actual living costs. You may also need to re-evaluate your emergency fund if your monthly living expenses have increased. That’s why he recommends taking some time to adjust before making any major purchases or renovations.
As with any conversation about home ownership, there’s a lot for first-time homebuyers to consider. Starting the conversation early in the process can help you develop a solid plan and give you the confidence you need to buy your first home.
Take the next step
When it comes to finding the perfect mortgage solution for your home, it always helps to have an expert in your corner who can help inform your decision-making. Whether you're buying, building or renovating, SCU is here to provide expert advice and guidance to help you find the right solution. Fill out our contact form or call us at 1.800.728.6440.