How to Go from Tenant to Homeowner

When you’re a tenant, you have very few worries when it comes to your property. You only have to make sure the rent is paid and maybe a few utilities. It’s quite different when you become the homeowner.

As a homeowner, you have to make sure several things are taken care of outside of your mortgage payment and utilities. There are several additional expenses and you’re solely responsible for the property. Here are some of the things to consider when you plan to go from tenant to homeowner.

Your Finances will Drive Everything

You may think your finances are driving the car now as you pay rent and other bills, but they become even more important when you buy a house. Your finances will be a huge factor in how much home you can buy and what your mortgage payment will look like.

It’s best to get your finances in order while you’re still renting, even if it delays the buying process. Make sure you repay any creditors you can and clean up your credit as much as possible. In addition, you want to save for the down payment.

The down payment will make a difference and there are first-time homebuyer programs you can use with down payments under 5% of the purchase price. However, if you put 20% down, you can avoid paying private mortgage insurance, which will make your mortgage payment lower. It will also make it easier to get approved by a lender.

You’ll want to work on your debt-to-income ratio, as well. This ratio is basically everything that shows up on your credit report and your rent payment each month. You don’t need to factor in groceries, utilities or anything not showing up on your credit report. This number divided by your monthly income will give you your debt-to-income ratio. Shoot for a DTI of less than 40% and the lower, the better.

Consider your Actual Budget

When you start shopping for your mortgage pre-approval, make sure you consider your actual budget. Lenders don’t account for food, utilities, clothing and other things you probably factor into your monthly budget. They may give you a pre-approval for a mortgage that will stretch your budget to the very max.

Before you start shopping, get the pre-approval letter, but also look at what you can really afford for a monthly payment. Keep in mind; you will also need to pay for homeowner’s insurance, repairs and maintenance, taxes and PMI if you don’t put enough down.

Start Home Shopping

Once you have the pre-approval letter, you’re ready to start shopping for a home. You want to hire a good, local real estate agent with experience in the neighborhoods you plan to shop in. If you plan to shop in the French Quarter, make sure your real estate agent knows the French Quarter real estate market well.

As you shop, don’t look at properties you cannot afford unless your real estate agent believes they are overpriced and could be negotiated into a property you can afford. There’s no sense in falling in love with a home you can’t afford.