A successful home buying experience is like any big project – it’s all about getting the details right from start to finish. These tips for first-time homebuyers will help you with the process.
You Should Start Saving Money Before Considering Buying a Home
When you decide to save for a home, these are the things you want to consider:
Down payment: your down payment requirement will depend on the lender and the type of mortgage. Fees for as little as 3% are allowed for first-time homebuyers by traditional lenders. But these small down payments can be a very challenging way for you to save. You can use a down payment calculator to see this: for example, a 3% down payment on a $250,000 home is $8,750.
Closing costs: these are the fees you pay to finalize the mortgage process, which range usually from 2% to 5% of the loan amount. You should request the seller to pay a part of your closing costs. That way you can save some expenses.
Moving expenses: we all know when buying a home, we will need some cash. You should consider setting aside some money for home repairs, renovations, and furniture.
Figure Out How Much Home You Can Afford
You should figure out how much you can spend on a house before starting your shopping.
A home buying calculator can give you a price range, based on your income, your debts, and your credit score.
Try to Improve Your Credit Score
If you want to know if you are qualified for a mortgage, you should check your credit score. This also can affect the interest rate lenders will offer.
These steps can help you improve your score:
For example, review your credit reports – the free copies you should take from credit bureaus — and then fix any errors that could damage your score.
Keeping your credit balances low and paying your bill on time is one of the best ways to strengthen your credit score.
Keep your current credit cards open, because closing a card will lower your score.
Explore Mortgage Options
There are a lot of mortgages that can be great options for you as a first-time buyer. They differ in their eligibility requirements. Below are some good choices you can look into.
Conventional mortgages are usually not backed up by the government. Some common loans that are targeted by first-time buyers require as little as 3% down.
Another option is an FHA loan. They are guaranteed by the Federal Housing Administration and have fees as low as 3.5%.
USDA loans are backed up by the U.S. Department of Agriculture. These loans are perfect for rural homebuyers and require no payment.
VA loans are another type of loan that is guaranteed by the Department of Veterans Affairs. Veterans are allowed to use these types of loans and they require no payment.
There are also a lot of options in the mortgage terms. Most homebuyers seek a 30-year fixed-rate mortgage, which has an interest rate that stays the same. As everyone knows that a 15-year loan has a lower interest rate, but the monthly fees are higher.
Research First-Time Homebuyer Assistance Programs
A lot of states provide different programs for first-time homebuyers, which provide low-interest rate mortgages. Some of the programs offer tax credits too.
Compare Mortgage Rates and Fees
The Consumer Financial Protection Bureau recommends requesting loan calculations for the same type of mortgage from various lenders to compare the costs.
Discount points are sometimes an opportunity that is offered by lenders, wherein the borrower can pay a lower interest rate.
Likewise, if you have the cash, and you are planning to stay in the home for a long time, discount points are a great option.
Get a Pre-approval Letter
The lender can offer to lend you a certain amount under specific terms. This is often called a mortgage pre-approval.
If you have a pre-approval letter you can prove to home sellers and real estate agents that you are a very serious buyer. Then, it is an advantage over other home shoppers.
Therefore, when you are ready to start home shopping, apply for pre-approval.
For example, If you apply for pre-approval from more than one lender it doesn’t hurt your credit score. As long as you apply to all of the lenders within 30 days.
Note: On many websites it is claimed that real estate agent‘s commission rates are 6%. While this has been true for the last 20 years, that’s now outdated. In 2021, the actual average real estate commission rate is 5.46% in the USA.
We hope you found this blog post Tips for First-Time Home Buyers useful. Be sure to check out our post House Hunting Tips for First-Time Home Buyers for more great tips!
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