The first step in the home buying process is to understand where you stand financially. Rest assured this guide was created to help you through this process in as painless a matter as possible. It’s not so bad. There are many different types of home loans available and not all are created equal. Now take a look at how to understand them and what you need to do to qualify.

Whether it’s your first time or your fifth, buying a home is a big decision. There’s no one right way to get ready for homeownership, but investing in financial preparation at the outset helps ensure you’ll be ready when it comes time to seal the deal.

Identify your timeline

Your timeline will be an important factor in defining realistic financial goals that you can achieve before you buy. If you know you’ll be relocating in two months, it’s probably unrealistic to pay off all your debts and save for a big down payment (although you might not need the latter—more on that in a moment).


Understand the costs of buying a home

Buying a house costs money. Not a surprise, right? But how much cash you’ll need at the outset depends on the type of financing you’re using, where in the country you’re buying, and more.

Your costs and fees may include the following:

  • Down payment: You’ll typically need a 5% down payment for conventional loans. FHA loans require a 3.5% down payment. Qualified veterans and service members may be able to purchase a home without a down payment using a VA loan.
  • Deposit: Buyers often include a deposit, or earnest money, along with their purchase offer. It usually ranges from $100 to $1,000 or more, and can be applied toward the closing costs. Service members who are relocating should talk with a knowledgeable real estate agent about what’s customary at their new duty station.
  • Appraisal and inspection: An appraisal helps establish the fair market value of a property and is typically paid outside of closing. An inspection isn’t required but is almost always a good investment. Costs vary, but expect to pay about $400 for the appraisal and about $300 for the inspection.
  • Closing costs: There’s a host of costs and charges linked to closing on your purchase, from origination fees and prepaid property taxes to paying for credit reports and more. Many military buyers negotiate to have the seller pay some or all of these costs. If that’s not possible, you will need to pay them.

Review Your Income, Debts & Buying Power

A lender will look at the relationship between your income and your current monthly debts to help determine how much home you can afford. The debt-to-income ratio you need can vary depending on the lender, the loan type, and other factors.


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