The process of buying a home can be rather intimidating ― even if you have been through it before. For first-time home buyers, it can be especially confusing and difficult. However, if you take the time to do your research, you can find the right home for your budget and lifestyle.
Here are 6 tips for first-time home buyers:
Tip #1: Know what you can afford
Look at your sources of income and look at your current expenses. Consider your increased monthly costs due to your mortgage payment and interest, homeowner’s insurance, property tax, general maintenance, and other expenses. Many first-time home buyers forget about the additional costs of owning a home. Know exactly what payment you can afford so you can determine the price range of homes that fit your budget. Try to keep your housing expenses below 30% of your monthly income.
Tip #2: Research the desired area
It is important for first-time home buyers to do neighborhood research. You should consider the schools your children may attend, how safe the area is, and the possibility of re-selling the house later. Also consider convenience and make sure you are moving into a location that you’re comfortable with.
Tip #3: Put together a good down payment
You will need a sizable down payment as a first-time home buyer. Because you won’t have an existing home to help you with a lump sum, you will likely need to plan ahead and save up for your down payment. The larger your down payment is, the better loan terms you can get.
Tip #4: Get pre-approval for a loan
When you are pre-approved for a home loan, the mortgage lender has already checked into your background and agrees to lend you a certain amount (usually offered for a limited time). A pre-approval letter can help give a first-time home buyer extra negotiating power when they make an offer on a home. It also helps you see how much house you can afford, so you don’t waste time looking at homes outside your budget.
Tip #5: Have your credit in order
Your credit score is very important to mortgage lenders. Some first-time home buyers do not have the credit score needed to get the best rates on home loans. You can plan ahead to boost your credit score so you qualify for a better mortgage rate, which will save you money (in interest) over the life of the loan.
Tip #6: Consider an FHA loan
The Federal Housing Administration (FHA) is part of the U.S. Department of Housing and Urban Development. The FHA does not originate mortgage loans ― it insures home loans that are issued by FHA-approved lenders. Note that FHA loans come with certain guidelines and restrictions. You may have to limit the size of your mortgage, but the down payment requirement can be as low as 3.5% and the loan terms are generally more favorable for first-time home buyers.
Buying a home is a huge step and many people consider it a main facet of the “American Dream.” While being a first-time home buyer can be daunting, the above tips can help facilitate the mortgage loan process.