Your first home purchase can be an exciting and scary time all at once. How do you know if you have everything you need? What if you get turned down? How much home can you afford? These are just a few of the questions that float through people’s minds. Here are 10 tips to help make it easier for you.
1) Save your money. The more money you can save for a down payment and to cover the closing costs, the better off you will be in the end. A higher down payment gives you more bargaining power on the sales price of the home. It also helps you to secure more lucrative financing. The money you save for the closing costs can also help you secure better financing options. Not too many programs allow you to roll the closing costs into the loan, unless you take a higher interest rate. With it being your first home, you want to keep the interest rate as low as possible in order to keep your payments affordable.
2) Check your credit. Next to the money you need for your first home purchase is the need for good credit. Everyone is entitled to a copy of their credit report from each of the credit bureaus one time per year. This means you can pull your own credit three times; once every four months is the ideal time. This way you can see what your creditors report about you and determine if it is correct. Sometimes, creditors report inaccurate information by mistake. Other times, something gets overlooked. There could be some instances where you do not even realize that you have bad credit reporting. Knowing ahead of time what your credit report says gives you time to fix it before you apply for financing.
3) Understand your options. There are many options for financing a first home. Many people think FHA financing is the only option, but there are many other choices. Take your time and do your research to know your options. You might find a great program, such as the USDA mortgage, which does not require a down payment or the FHA loan which only requires a 3.5% down payment. When you know your options, you can compare them side-by-side to determine which one will give you the best and most affordable terms.
4) Go over your budget. Before you decide on a mortgage, it is important to look through your budget. You might spend more money than you realize each month, making it harder to afford the mortgage payment. Look at obvious things, like any loan payments you owe as well as credit card payments, groceries, utilities, and miscellaneous items. Figure out how well you can afford a mortgage payment as well as where you can make adjustments to your budget to ensure that you do not struggle making your payments on time.
5) Shop for lenders. You do not have to secure a mortgage from the bank down the street or the bank where you have your checking account. You can secure a mortgage from any lender certified in your state. This could mean shopping online or over the phone for a mortgage. Look for lenders that offer the programs you have the most interest in as well as those that offer loans to people in your situation. There are lenders that cater to first-time homebuyers as well as those that offer FHA and USDA loans. If you do want a government-backed loan, you will need to find a lender that is approved to offer them; not every lender is able to do this.
6) Get a preapproval from a lender. When you shop around with different lenders, you will receive quotes from them. These quotes are prequalifications; this is different from a preapproval. A prequalification shows you what you might qualify to receive from the lender once you turn in your paperwork that verifies everything you told the lender. The prequalification will not help you when you shop for a home. The preapproval, however, is a statement to a seller that you are preapproved for a specific loan amount and a specific loan program. This means the lender verified your documents and is willing to provide you with the program they offer in the preapproval letter assuming you meet the conditions stated in the letter. This preapproval letter will get you much further when you shop for a home.
7) Save money for after the closing. After you sign on the dotted line and pay your down payment and closing costs, you still want to have money left over. Moving into your first home costs money. It is not enough to own the home; you will need money for moving, furniture, and turning on the utilities, just to name a few things. Keep this in mind as you get your budget ready for your first home purchase.
8) Lower your debts. If you have a lot of outstanding debts, now is the perfect time to start paying them off. The less money you have outstanding compared to your available credit, the more favorable a lender will look at you. Typically, lenders do not want to see more than 30 percent of any available credit outstanding as that signifies that you are irresponsible with your finances. Start paying those balances down to get to that point before you apply for any mortgages.
9) Use a professional. There are many professionals available to help you in the process of looking for a home. You could use a realtor or a mortgage professional that understands your situation. When you have that third party input, you are more likely to make a more rational decision regarding your home purchase.
10) Really evaluate the home you wish to purchase. Before you sign a sales contract, make sure the home is the one you really want. Do not just visit it once and decide it is perfect for you. Instead, visit it during different times of the day and different days of the week. Check out the neighborhood and the surrounding community as well to make sure you will be comfortable and happy there for many years.
These tips will help you get properly financed and make your first home purchase as stress-free and successful as possible!