A simple beginner’s guide to buying a house

On this episode of Getting Rich, go on a financial journey with Carmen Perez as she outlines the pro tips and tricks to own your bank account, from credit scores to crushing student loan debt.

Buying your first home can be an exciting and life-changing experience! But it can also be confusing. When considering purchasing your first home, it’s important to figure out whether you are financially ready, and to understand exactly what goes into buying a home. Fortunately, financial expert Carmen Perez (@makerealcents) of Make Real Cents is here to help!

On this episode of Getting Rich, Carmen breaks down how mortgages work, explains what you’ll need to do to be ready to buy a house, and then chats with Hitomi Makotinsky, a New Yorker who is considering purchasing her first home in Long Island!

Before you start browsing house listings, it’s important to understand how mortgages work, according to Carmen. She explains that a mortgage is a type of loan that allows you to put down a percentage of your house’s cost up front, and then pay back the rest over time. 

“Typically, first-time home buyers will pay between 3.5% and 10% of a home’s cost,” Carmen explains. “But, let’s say for this scenario, you put down 20% of your home’s cost and the rest of the loan is what you have to pay back. Spread that over time, plus interest, and that’s a mortgage.”

Next, Carmen provides a simple checklist to figure out if you’re in good financial shape to purchase a home. First, make sure you have a high enough credit score. “The minimum credit score to make the minimum down payment of 3.5% is 580. But the truth is, most lenders require a score of at least 620 or higher,” she explains. “While the minimum requirement is often a lot less, estimating a 20% down payment towards a home is a great starting point.”

Second, Carmen recommends calculating your monthly debt-to-income ratio. “Lenders like to see that number at 36% or less,” Carmen explains. “You can find this by taking your recurring monthly debt and dividing it by your monthly income before taxes.”

Third, make sure you have a stable job or career. “Two years in the same job is a good look,” Carmen recommends. “And if not, two years in the same industry is the next best thing.”

Next, Carmen sits down with Hitomi Makotinsky, a mom-of-two who hopes to purchase her first home. Hitomi asks Carmen for her advice on first-time home purchasing.

Carmen tells Hitomi that once she figures out where she wants to live and her budget, one of the best things to do is get all of her paperwork together. In a competitive housing market, Carmen explains, being able to quickly provide paperwork can put you ahead of other potential buyers. 

“So, getting the paperwork together, as far as bank statements, all of your investments, being able to show proof of that,” Carmen explains. “It’s really nice to have a pre-approval letter that you can go in with, especially if it’s a home that you’ve fallen in love with and there are other buyers that are potentially trying to get it. That pre-approval can put you to the top of that list.”

Then, Hitomi asks Carmen whether now is a good time to purchase a home. Carmen replies that there’s no good or bad time to buy a home. The most important thing is to figure out your budget and stick to it. “Really, it’s just important to find a price that works for you and your family,” Carmen explains. 

Finally, Carmen shares 3 questions anyone considering purchasing a home should ask themselves. First, she recommends asking yourself whether you can commit to living in the home and the city it’s in for at least 5 years. Second, she recommends asking yourself whether you can cover at least 3 months of living expenses with an emergency fund. And, last but not least, she says to ask yourself whether you are likely to have a steady source of income for the next 5 years. 

“If you answered yes to all 3 of these, you’re definitely ready to start taking the next steps,” Carmen explains. “Happy house hunting!”

Carmen is not a registered investment advisor. The above information is not investment advice and is intended for educational purposes only. Please consult with a financial professional to assess what investments are suitable for you based on your financial objectives, needs, and risk tolerance.

More from In The Know:

The 52 best tech deals you need to snag this weekend — as low as $10

This entryway rack is perfect for shoes, books, plants and more — people are kind of obsessed with it

8 cute matching pajama sets worth spending a whole weekend in

The 8 best sunscreens under $50 according to Sephora shoppers

Listen to the latest episode of our pop culture podcast, We Should Talk: