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How to Become a Homeowner – What You Need to Know

Are you itching to become a homeowner this year? If so, we are here to share all you need to know on this all-important topic! Join us as we discuss mortgages, credit and debt management, the home closing process, and more.

What Is a Homeowner?

Let’s start with the basics: What is a homeowner? Simply put, a homeowner is an individual who owns a home – easy, right? Homeowners purchase property, usually for a primary residence. If they do not have enough cash to buy the property, they must secure financing before finalizing the sale and moving in.

Homeownership comes with many benefits, including the following:

  1. You will have predictable monthly payments.
  2. Your home will build equity, which is the difference between your home’s value and your mortgage loan balance. Equity helps to build wealth, provides access to a “rainy day” fund, and helps create a more secure retirement.
  3. Your home’s value will appreciate – or grow – over time. Equity and appreciation work together to increase homeowners’ wealth. Fun fact: Did you know homeowners have gained between $98,900 and $150,800 in wealth over the last decade?
  4. Making monthly mortgage payments is often cheaper than renting.
  5. Many homeowner expenses are tax deductible.
  6. You can make the home modifications and updates you want.
  7. Homeownership can help build credit.

How to Qualify for a Mortgage

Qualifying for a mortgage is often easier than you think. The first step is to prepare for your upcoming mortgage. During this step, you will review your credit report and scores. If you have credit questions, check out our Home Buyer’s guide to credit!

While each mortgage has minimum qualifications for Home Buyers to meet, here are a few main things to consider:

  • You need a steady income.
  • You need a consistent employment history.
  • As mentioned, you need a decent credit score to qualify for most mortgage programs.
  • Depending on the loan, you may need a down payment.

Quick note: Home Buyers with lower income and credit scores often qualify for FHA, VA, or USDA home loans, so don’t let mortgage qualifications scare you – there are many avenues to explore on your path to homeownership!

Understanding Credit and Debt Management

As you prepare to become a homeowner, you’ll quickly learn that your credit and current debt play essential roles in getting approved for a mortgage (and securing a lower mortgage interest rate). Your goal here will be to build your credit while reducing your debt.

To build your credit, ensure you make all payments on time each month. Consider setting up monthly auto-payments if you often need to remember due dates. Next, don’t open new credit card accounts or close current accounts, which can lower your credit score. Lastly, try to keep current credit card balances low and don’t make new charges.

As we mentioned, debt management is also essential during this time. Create a reasonable budget you can stick to and avoid frivolous spending. Commit to paying off your higher interest rate debt first while making more than the minimum payment on other credit cards or loans. Additionally, avoid making large purchases leading up to your mortgage application.

Different Types of Mortgages – Choosing the Best Option for You

Check out a few types of mortgage loans below to help you choose which might be right for you:

  1. Conventional home loans – Conventional loans are mortgage loans offered by private lenders without government backing. They typically require higher credit scores and a larger down payment than government-backed loans. They are popular among borrowers with good credit who want to buy or refinance a primary residence, vacation home, or investment property.
  2. Jumbo home loans – Jumbo loans are often called non-conforming loans. This type of loan program is typically used for mortgages exceeding conforming loan limits, which was $647,200 in most areas in the U.S. in 2022. Buyers that want to purchase higher-priced properties apply for jumbo loans.
  3. Government-insured home loans – We discussed FHA, VA, and USDA loans earlier. While the government isn’t a mortgage lender, they back these loans, making homeownership more attainable for people with lower incomes or credit scores.

These loans are often advantageous for first time Home Buyers.

Preparing for the Closing Process and Finalizing Your New Loan

It’s time to prepare for the closing process after you are approved for your mortgage and the seller accepts your home offer. During this time, you will probably talk to your lender and Realtor® more often. They will help nail down your closing date and prepare essential documents.

You will have tasks like providing final mortgage documents, purchasing homeowner’s insurance, reviewing your initial closing disclosure, and more. Your Realtor® and lender will be there to guide you through each step, so there is no need to worry. They will answer your questions and ensure you never miss a deadline, helping the closing process run more smoothly.

Finding a Reliable, Professional Realtor® to Help You Become a Homeowner

We’ve discussed many vital steps to homeownership today. Another essential step, which should never be skipped, is finding a knowledgeable Realtor® to help you with your homeownership journey.

At Spectrum Real Estate Consultants Team, our six core values ensure that every Home Buyer is treated professionally and compassionately. Are you ready to experience the Spectrum difference? Please reach out to us with questions or take a moment to schedule your Home Buyer consultation – we can’t wait to chat!

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