A lot goes into buying a house beyond just saving enough money, though that’s obviously an important step in the process. The list of tasks before making a home purchase depends on factors ranging from your job status and credit history to your household income and bank savings.
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So how should you round out that checklist? Here’s a look at six things you need before buying a house.
According to Fidelity, you typically need a credit score of at least 620 to qualify for a conventional mortgage loan. That’s in the upper half of the FICO credit score system, which goes from 300 to 850.
Depending on the house and neighborhood, you could need a score as high as 720 or above. On the other hand, you might qualify for an FHA or other loan type with a score as low as 500. The one thing you should do is check your credit score to see what type of mortgage you qualify for.
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Putting together a budget before buying a home is a must because it lets you know how much house you can afford based on your income, expenses and lifestyle. First, you’ll need to account for the down payment, which will vary depending on your mortgage type and credit history. Beyond that, Freddie Mac recommends including the following in your budget:
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Closing Costs: These typically range from 2% to 5% of the home purchase price.
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New Expenses: For most homebuyers, the budget should include moving costs, new furniture, appliances/housewares, remodeling/painting, and any other expenses directly tied to settling into your new house.
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Housing Costs: If you currently own or rent a home, then you probably already have housing costs in your budget. However, you’ll need to adjust the budget based on your projected mortgage payment, property taxes, homeowner association (HOA) fees and related costs.
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Ongoing Maintenance: This includes expenses associated with maintaining your home and property, such as cleaning, yardwork and repairs.
As part of the mortgage approval process, you’ll need to provide your lender with your proof of employment, monthly income and monthly recurring debts, according to Homebuyer.com. Salaried employees can provide pay stubs or W-2 forms. If you are self-employed, you’ll probably need to show recent tax returns and business documents
The standard down payment is 20% or more of the home’s purchase price. Rocket Mortgage suggests this amount will exempt you from having to pay private mortgage insurance (PMI). However, your down payment can be as little as 3% if you are willing to pay PMI. Keep in mind that the bigger the down payment, the smaller your monthly mortgage payment.