Purchasing a house is a big deal, especially if you’re a first-time homebuyer. Check out these important tips to help you make the right moves toward finding your dream home.
To help better explain the home-buying process, we’ve separated these tips into 3 sections:
Understanding The Down Payment
Applying For A Mortgage
Shopping For A Home
Understanding The Down Payment
1. Weigh your options…
Consider what type of down payment is best for you. Many home buyers put 20% down. However, there are many other options where you can buy a home for far less money out of your pocket. For instance, different lenders may require lower down payments. Also, certain programs ask for as little as 3% down for first-time home buyers. But keep in mind, putting down a lower percentage can lead to higher premiums, as well as higher mortgage insurance rates.
2. …and start saving early
Depending on the cost of the home, a smaller down payment can still come at a high price. For example, a 5% down payment on a $300,000 home will cost $15,000.
Some helpful tips when it comes to saving for a down payment: setting aside tax refunds, creating an automatic savings plan, using apps to track how much you’ve saved.
3. Understand the different types of mortgages
Everyone’s situation is unique. You should consider your different options so you can find the loan type that works best for you. Carefully weigh the pros and cons of the mortgage types:
Conventional Loans: This type of loan follows the rules set by the Fannie Mae and Freddie Mac agencies. Some conventional loans allow as little as 3% down.
FHA Loans require down payments as low as 3.5%. This type of loan also has more flexible rules when it comes to credit scores and debt-to-income requirements. These loans are backed by the Federal Housing Administration.
VA Loans require no down payment at all. These loans are for active duty service members, veterans, and certain military spouses.
15-Year Fixed Mortgages: This type of loan helps borrowers reach full homeownership in a shorter amount of time. However, this option comes with higher monthly mortgage payments.
30-Year Fixed Mortgages: These loans give you lower monthly mortgage payments than the 15-year option, but it takes longer to achieve full homeownership.
Adjustable Rate Mortgages (ARM): This option gives you a low interest rate for the first few years of your mortgage, and then the interest rate adjusts after a set period.
Generally speaking, the higher the down payment, the lower the monthly mortgage payment. Other factors such as credit history and loan type can greatly impact the rates.
To learn more about your mortgage options, take a look at the pages that explain each type of loan. Also, contact a mortgage professional who can help you decide what kind of mortgage is best for you.
4. Look into state & local assistance programs
Depending on your state, you may qualify for first-time home buyer assistance programs. These programs come with incentives like down payment aid, closing cost aid and tax credits.
Your local county or municipality may also provide additional assistance for first-time home buyers.
Applying For A Mortgage
5. Determine your budget
It’s crucial to know what you can comfortably afford before you start the search for your dream home. A great first step toward nailing down a budget is to get pre-qualified. Getting pre-qualified means speaking to a mortgage consultant about your financial situation and getting a rough estimate of your price range.
6. Check your credit score & pause any new activity
Your credit will help determine whether you’re accepted when applying for a mortgage loan, and it also impacts the interest rate and terms of the loan.
Before beginning the home buying process, check your credit score. Take into account any missteps that could harm your credit. If there are any errors in your credit history, make sure to dispute them and get them cleared up as soon as possible. Also, try to improve your credit by paying off your credit card debt.
You do not want your credit to dip during the mortgage application process. To prevent this, pause any new activity (like credit cards or auto loans) until you close on your new home.
7. Get a second opinion from a mortgage professional
If you rely on a single quote from only one lender, you might miss out on hefty savings. You want to work with the mortgage professional who can get you the best value, not just the best rate. Lower interest rates are great, but you should also ask about extra fees.
Loan officers and mortgage brokers should be upfront and honest about what they can offer you. In fact, a lot of mortgage professionals will encourage you to get a second opinion. (As a side note, if you go to a mortgage banker, make sure to ask them about overlay fees.)
Overall, you want to work with the mortgage professional who can get you the best value for your home loan, as well as someone who’s an open book when it comes to your different options.
8. Obtain a letter of pre-approval
Getting pre-approved for a mortgage means that a lender has taken a close look at your finances and written out a detailed explanation of how much they can lend you, as well as what conditions apply to your loan.
Getting this pre-approval letter is helpful because it makes you stand out as a serious buyer to realtors and sellers, while also giving you an advantage over other home buyers who do not have a pre-approval letter in hand. In addition, getting pre-approved can speed up the process of closing on a mortgage.
Tips for House Shopping
9. Choose a realtor you can trust
Make sure to hire a real estate agent who is knowledgeable, qualified, and trustworthy. This person should genuinely want to help you find your dream home. The realtor can also help you negotiate with the seller, potentially saving you money on repairs or closing costs. Buying a home is a big deal, so it’s important to have a friendly and professional relationship with your realtor. A good real estate agent will make the process run as smoothly as possible.
10. Determine the type of home and neighborhood best suited for you
What type of home are you looking for? A single family home works great if you want more space and maybe a bigger yard. However, you may not be as concerned with space as you are about minimizing upkeep and getting more amenities. If this is the case, and you don’t mind paying an HOA fee, then a condo or townhome may be perfect for you!
In addition, you should also take a deeper look into the surrounding community:
- Drive around the area at various times to get a better sense of the neighborhood. Take into account traffic, noise levels, and overall activity.
- Look at important statistics related to local health and crime.
- Determine where the closest hospital is, as well as nearby post offices, grocery stores, pharmacies, etc.
- Even if you don’t have children, research nearby schools (as these can impact the value of your home).
11. Stay within your budget
Remember, your pre-approval cost is the ceiling. It does not account for other costs that come up during home ownership like monthly upkeep or major repairs. For this reason, you should focus on houses that cost less than your pre-approved loan amount.
Depending on how competitive the market is, you may have your eyes set on a house that attracts several bidders. You might fall in love with one home and feel tempted to make a high-priced bid to beat the competition. However, these major decisions should not be based on emotion.
Staying under your pre-approval price gives you some wiggle room when bidding. Going overboard will make it difficult to afford your mortgage payments and other expenses.
12. How to get the most out of open houses
To make the most of your home viewing, prepare yourself by coming up with a list of important questions. During the open house, pay close attention to the general condition of the home (Are there any suspicious smells, stains, or features in disrepair?). Keep a critical eye when looking at the property and ask deeper questions about the house. For example, when was the home built? How old are the A/C and heating systems? Why do the sellers want to move?
If other potential buyers attend the viewing at the same time as you, consider planning another visit to take a closer look and ask more private questions.
All in all, the process of buying a home may seem complicated and even overwhelming at times. But you’ve worked hard to get to this point in your life, so you got this! Also, there are mortgage professionals and other resources out there that can help you find the home of your dreams.
