First Time Home Buyer Tips to Achieve Your Goal to Own
Getting ready to buy your first home can be a very exciting and confusing moment of your life at the same time—credit scores, mortgages, and down payments all in your mind. But with the right information, you can shop for your dream house, set good financial goals, apply for a mortgage, and close deals with confidence like a guru.
Before you go ahead and shop for your first dream house, ensure you are certain that it's the right time to do so. Owning a home pays off after four or five years if you are living in it. However, there is nothing wrong with renting it. The actual number of years required to increase or lower your house value depends on whether you are planning to rent or use it.
Although some of you will disagree with me, you should not see your home as an investment or buy a home as an investment. It is not a guarantee it will rise, but we hope it will appreciate over the years.
For that reason, you should not struggle to buy a house, thinking how you will cash out on profit in a few years. It would help if you only focused on buying or renting a house that you can afford today. If you live in an expensive neighborhood, ensure you keep the total housing payments under 30% of your total monthly income.
When you spend so much on a mortgage, you risk becoming poor. You'll find it challenging to maintain good financial goals, save or cover other monthly expenses like electricity, gas, and water bills.
Prepare finances for the mortgage process
It is heartbreaking to find your first dream house and then discover later that you are financially disqualified. To ensure you are financially ready to buy your first home, you should have good credit, cash to close, and proof of income.
Check your credit score
Hopefully, this does not surprise you, but you need to have a good credit score when getting a mortgage. We recommend that you frequently check for your credit report errors and, if possible, ensure you invest more on your credit a few months before you apply for a mortgage.
The fastest way to build a good credit score is to pay your credit card balance and stop using it for two or three months. Also, avoid applying for another card during this period. If you are buying your first home jointly with your spouse, your mortgage lender will likely consider both your credit scores.
If your spouse has a poor credit score, you are more likely to be doomed. However, don't consider things to go on a hitch because one of you has a poor credit score.
We recommend that you improve your credit score significantly for at least six or seven months before you settle to get started with your mortgage.
Begin Saving Early For the Following
There are several things you need to consider when saving for a home that includes:
· Down payment
The down-payment you will pay on your mortgage depends on the type of mortgage you choose and the lender. Today, some conventional loans focus on helping first-time homebuyers deposit a down payment with a low credit rating of 3% successfully.
Although sometimes it can be challenging to save for a small down payment, you can use modern tools to calculate down payment and decide where to sign up for automatic checking transfers to get started with saving.
· Closing Cost
The closing costs are fees and expenses you pay to finalize your mortgage, and they usually range between 2% to 5% of the total loan amount. If you want to save on some expenses, you can always ask the seller to pay a portion of the closing costs. You can also save some money on expenses like a home inspection by shopping within.
· Moving in Expenses
After purchasing your first home, you will need some cash set aside for immediate home repairs, furnishing, and upgrades.
Explore Other Mortgage Options
There are a variety of mortgage options available with frequent rising and lowering down payments that include:
· Conventional Mortgages
The government does not guarantee them, and some of the target first-time homebuyers acquire them with as little as 3%.
· FHA Loans
They are insured by the federal or state housing administration department, and they allow as low as 3.5% down payment.
· USDA Loans
The U.S. Department of Agriculture guarantees them and the primary focus is on rural home buyers. The good thing about USDA loans is that they do not demand a down payment.
· VA Loans
The department of veterans affairs guarantees them, and they are currently meant for war veterans and military service members. They usually do not require a down payment.
In addition to this, you also have an optin when it comes to the mortgage terms. Most mortgage home buyers choose a 30 year fixed mortgage plan which has a constant interest rate. A 15-year mortgage plan has a lower interest rate than a 30-year mortgage plan, and this is because the monthly payments are larger.
Look for First-Time Homebuyer Assistance Programs
Today, many cities and states offer first-time homebuyer assistance programs, which often combine low-interest rates mortgages with down payment assistance and closing cost assistance. Tax creditors are also available and ready to help first-time home buyers.
Compare Different Mortgage Rates and Fees
The customer monetary protection bureau advises asking for loan estimates for the same mortgage perk from different lenders. This helps you to filter out the costs, including interest ratio and possible origination tariffs.
Most lenders offer a chance to buy concession points for those borrowers who pay upfront to the lower interest rates. Buying concession points only makes sense if you have the cash at hand and plan to stay at home for an extended period. There are tons of online tools you can use to calculate discounts and decide.
Get Yourself a Preapproval Letter
Getting yourself a preapproval letter shows the home seller and the real estate agent that you are a serious buyer. It also gives a privilege over other home buyers who haven't taken this step yet.
To apply for a preapproval, the lender will need your credit review to verify your income, assets, and debt. Note that applying for a preapproval letter from one lender to another will not affect your credit score as long as you apply for them within a limited time frame of 30 days.
Choose A Real Estate Agent Carefully
When selecting a real estate agent, you will have to be careful since there are fraudsters real estate agents. A good real estate agent should know homes in the market for sale that suit your needs through negotiations and the closing process.
We recommend that you get a house agent from a recent home buyer, interview at least three agents, and request references. When speaking with potential real estate agents ask them about their experience with helping first-time home buyers and how they plan to help you find a home.
Let's Start Working Towards Your Goals Together!
Carefully Select the Right Type of House and Neighborhood!
It is good to note that there are different pros and cons given the type of home, your lifestyle, and your budget. A town home is more affordable than a single-family home outside of town. Town homes are usually apartments, and as you know, shared walls have less privacy.
Don't forget the additional fee for Homeowners Association when shopping for town homes or planned and gated communities. However, another option you may consider is buying a fixer-upper- or single-family home that needs updates and repairs. Note that you may need an extra budget for repairing and renovating the home.
The extra cash for renovating should not worry you since lenders offer renovation mortgages that finance home repairs and home renovation and for any extra cost of improvements in the loan.
Decide Whether to Buy and Build or Renovate
At this stage, you will need to think if whether your first home is your starter home or your permanent residence. If you plan to have more children, it will make sense to build an extra room after you purchase the house.
Check your potential neighborhood thoroughly and ensure no criminal activities are happening within your community. Also, if you commute to work, you need to test the traffic during the rush hours.
Stick to Your Budget
If you have good credit and a good bank balance, your lender may convince you to take a loan that is more than you need. Although you may feel the temptation to spend outside your comfort zone to beat other buyers, we recommend sticking to your budget to avoid financial stress in the future.
Ensure you stick to your budget and, if possible, try and bargain or negotiate with the seller to get a good deal.
Make the Most of The Open Houses
Over the 24 months, online tours have become more popular due to the global pandemic. Using virtual tours to walk around the house help the buyer to observe details that stock photos do not catch.
Note that virtual travels do not supply all the information as personal visits do. Through individual visits, you will get to know how the carpet smells, the texture of the wall and narrow the list of properties you need to visit.
When you are touring a home in person helps to open your senses and helps you pay attention to noise, odors and look at the overall condition of the interior and exterior. You will also be able to ask how old the plumbing and the electrical systems are and the roof.
What Do You Need to Do Before You Purchase a Home?
Pay for a home inspection
After you have seen and settled with the house of your dreams, the next step is to hire a home inspector to check the mechanical systems and the potential issues so that you can make an informed decision about buying the property. keep in mind that
A basic inspection does not test for things like mold, pests, and radon. Before you pay for the inspection, try and understand what is included in the inspection package you want to purchase verse what you need.
Ensure the Inspector Can Get Every Section of The House (Including the Roof and Crawl Spaces)
As a buyer, you need to attend the inspection by following the inspector around the house as you ask questions and better understand spots that your inspector finds. If you cannot attend the inspection, ensure you go through the inspector report thoroughly and ask anything that you do not understand.
Negotiate with the seller
Negotiating with the seller can save you some money by requesting the seller to pay for some repairs that you must fix later. You can also request the home seller to pay for some closing costs. But note that most lenders limit the amount the seller can pay.
Your negotiating power depends on the demand and price of the house within the local market. It is usually harder to get a huge bargain when there are more buyers than sellers in the market. Ensure you work with a seller who understands the local market perfectly and can help you strategize how you will approach the market.
Buy Enough Home Insurance
Your lender will ask you to buy adequate home insurance before closing the deal. Home insurance covers the cost of repairs, replacements, and personal belongings if an incident occurs like fire or theft in your house.
It also provides liability insurance if you are held responsible for an injury or accident. You are buying enough home insurance to cover the cost of rebuilding the home if it's destroyed and can also save your pocket.
Mistakes That First Time Home Buyers Make!
Looking for A Home Before They Apply for A Mortgage
It is very unrealistic to start viewing houses before you get in front of a mortgage lender. Today the real estate market is hot. In such a competitive market, you may lose your dream house if you are not preapproved.
Getting in front of a mortgage lender can save you some time since you will easily filter the house you can afford from what you cannot.
Buying A House That They Cannot Afford
It is easy to fall in love with a house that is way more expensive than your budget. Most first-time buyers think it is a good idea, but it is not, especially with the prices trending upward; it may cause stress to your financial status leading to foreclosure.
When buying your first house, you should look forward to paying what you can afford and also ways to increase its value.
Moving Too Fast
The process of purchasing a house is complex, especially when you are using a mortgage. Rushing to make a purchase is a huge mistake since you will not be able to save enough for the down payment and closing cost.
The more you spend on your credit to clear these fees will ruin your credit status, thus preventing you from securing a favorable loan.
Therefore, before you go ahead to make a purchase ensure you give yourself at least 12 months to repair your credit score and save for a sizeable down payment.
Draining Your Savings
Spending almost every penny in your wallet is one of the biggest mistakes first-time homebuyers make. Suppose you put more than 20% to pay for mortgage insurance when getting a conventional mortgage. You might fall into the trap of substantial saving on mortgage payments which is a risk not worth living on the edge.
Instead of doing this, you should aim for at least six months of living on emergency funds even after closing the deal. Why? Because paying for mortgage insurance is not worth deleting your retirement or saving funds.
Being Careless with Credit
Most lenders will pull your credit report during preapproval to ensure things checkout before closing. They do this to make sure that there is nothing that has changed in your financial profile. New loans can ruin the closing or final loan approval.
Many first-time buyers learn this lesson the hard way, therefore ensure you maintain a good financial profile by not taking new loans until you close the deal and get your final loan approved.
Making A Decision Based on Emotion
Buying a house is a major milestone, a place you will make memories and put down roots. Therefore, it is easy to get too attached to a place and make an emotional decision, leading to overpaying for a home and stretching your wallet so harshly.
Doing this can lead to a financial crisis in the future when you cannot take care of other house bills. For this reason, we recommend you stick to your budget and do not make an emotional decision.
Conclusion
Buying your first home can be extremely exciting, but there is a lot to consider before you begin looking. The first step is setting financial goals in order and using online tools to compare mortgages and manage your credit score.