November 5th, 2018
Tips on Buying Your First Home
Buying your first home is a huge investment and one of the most significant purchases you will ever make. Before you become a first-time home owner, there are a few things you should prepare for.
Improve Your Credit (If Necessary)
One common misconception is that less than ideal credit will disqualify you from buying a home. However, if you are buying a home with a partner and one of you has less than desirable credit, evaluate the one with the lower credit score to see if it can be improved before applying for a loan. You can do this by paying down your balances, getting your bills current, and becoming an authorized user on a responsible relative or partners account as you can piggyback on their good credit. If this is not an option, proceed with the loan using only the individual with ideal qualifying credit. Although the loan will be in one name, both of you can still be owners of the property. Keep in mind, making your mortgage payments on time will only benefit the individual who is on the loan.
A score of 750 or higher will give you the best rates on the market
A score of 720-700 will get you a good deal
A score below 680-660 will result in you having to pay higher fees and a higher down payment
Start Early & Set Realistic Expectations
Setting a budget is key when buying a home for the first time. Don’t wait until you need to move to get the process started. Start with exploring all of the options available to first time homebuyers and clearing up any financial issues you may have prior to getting approved for your mortgage. If you don’t have a ton of cash available for the down payment, there are still several options available to make the upfront costs of buying a home more affordable. Examine your monthly expenses such as you car payment, insurance, cell phone, and utility bills. These will factor into how much you can afford for a monthly mortgage. Determine what your non-negotiable amenities are and identify what you’d be willing to compromise on so that your criteria will direct you to homes that both suit your needs and fall within your budget. Prepare to spend 1 to 3 percent of the value of your home each year on house expenses.
Save For A Down Payment
It is recommended that you save between 3 percent and 20 percent of the house price for a down payment. Your credit history and loan terms help determine how much you’ll need to come up with. Home loans backed by the Department of Veterans Affairs require no down payment. Keep in mind that you will still need to save for closing costs and the average closing cost for a $200,000 mortgage is $2,084. If need be, there are resources available online for first-time home buyers who need assistance with the down payment. There are also other options to consider:
- Conventional mortgages: conform to standards set by the government-sponsored entities Fannie Mae and Freddie Mac, and require as little as 3% down.
- Federal Housing Administration loans: permit down payments as low as 3.5%.
Note that the amount you give for your down payment will determine your monthly mortgage payment and interest rate. If you want the smallest mortgage payment possible, opt for a 30-year fixed mortgage. Although, if you can afford larger monthly payments you can get a lower interest rate with a 20-year or 15-year fixed loan. You may also prefer an adjustable-rate mortgage, which is riskier, but guarantees you a lower interest rate for the first few years of your mortgage.
Shop a Loan
Interview at least three lenders and compare the “good faith” estimates. A good faith estimate is used to compare offers from different lenders or brokers. The process can take as little as an hour and they should respond to you quickly. To ensure you are comparing apples to apples when it comes to comparing costs and interests rates, you want to be consistent with your scenario with each lender/broker. Look for a loan that you’d be comfortable taking on for at least 3 years.
Get Pre-Approved for a Mortgage
It is smart to get pre-approved when you come closer to buying a home. This means that a lender thoroughly examines your finances and determines in writing how much they are willing to lend you and under what terms. Receiving a pre-approved letter can give you the upper hand over buyers that have not taken this step as apart of their home buying process.
Hire Professionals
There are many benefits to hiring a Real Estate agent. An agent will help you throughout the process of buying your home and will save you time by sending you listings directly from MLS that fit the parameters you have provided. Agents often know of new listings coming up that are not yet on the market and will preview homes of your choice for you. An agent can also generally spot overpriced listings and will be able to assist you in making strong, yet realistic offers. In addition to hiring a Real Estate agent, it is advised to hire a licensed home inspector who can make sure there are no significant issues with the homes you are wanting to purchase. This will give you peace of mind and potentially save you a significant amount of money in the long run.
Try Each Neighborhood on
Ask your friends and family for feedback on where they live. You will want to spend some time in the area of town you are considering. Do your research on the neighborhood of your choice. Visit the local restaurants, grocery stores, schools, parks and the nearest amenities. Take a look at the statistics online for safety and crime. If there is a specific home you are interested in, meet the surrounding neighbors for the house you’re considering. You can always change the house or upgrade the finishes, but you can’t change the location or who your neighbors are.
Take Your Time
At the end of the day, your goal is to find a home that makes you happy. The process is rarely a quick one because it is deserving of the time it takes to make a good decision. It is not uncommon to get your heart set on a home and for things to not work out for a variety of reasons. Keep in mind, there will always be another home and another deal around the corner for you. Finding the right home is like dating, sometimes you have to go through a few fixer-uppers to find the perfect one! Happy hunting!