Most Important Steps For First Time Home Buyers
Buying your first home can seem overwhelming, but learning more about the home buying process can help you understand and prepare for it. One of the best things about being a first-time homebuyer is that you don’t have to sell an existing home before you can buy. This provides added flexibility and means you won’t have to miss out on a home you love because you haven’t yet sold the home you have. What can you do to prepare for the process and what steps should you be taking now? These tips will help:
Get a Financial Checkup
How is your overall financial health? Buying a new home will require some extra cash even if you don’t have to put a full 20% down (and many mortgage loans don’t require this large of a down payment). You’ll need money for that down payment, for closing costs and even as a cash reserve after your mortgage closes.
A look at what you make and what you spend, along with a budget that incorporates some money for saving for your new home, can help get you on the road to homeownership. This is also an ideal time to examine your expenditures to ensure that you are not paying too much for things you don’t use (old subscriptions, memberships and other items you can live without) and identify areas where you can save. The more money you can save now, the easier the home buying process will be.
Work on Your Credit
Your credit score will play a large role in determining not only if you can be approved for a mortgage, but the interest rate you’ll be offered. Since a better score secures you a lower interest rate, working towards the best possible score can ensure you are also getting an ideal rate for your new home and keep your monthly payments lower.
Now is the time to check both your credit report and your credit score and monitor them regularly. If you have any negative or erroneous information, work to clear these up or resolve the debts to improve your score before you apply for a mortgage.
Learn About the Advantages of Home Ownership
If you are currently renting, you won’t get the same tax breaks as most homeowners; once you buy, you may be able to take advantage of a variety of benefits and tax deductions designed for homeowners (check with your own tax advisor for advice about your particular situation). These could improve your overall financial outlook and reduce your tax bill; you may find you will spend less money each year by buying, once all factors are considered.
Learn How Much You Could Spend
Online mortgage calculators or a chat with a loan officer can help you determine how much you can spend on your new home. By plugging in your annual income and your expenses, you can come up with both a monthly payment and a total cost for your new home. Use this information to help you realistically shop for your first home. You can also use a calculator to determine how much money you’ll need to put down on a home.
Research Loan Types
While a conforming or conventional loan may work for you, it may not be the ideal product. Learning more about your loan options allows you to choose the one that best fits your financial outlook. Consider the following loan types, one may suit your needs better than others:
- Conforming Loan: This is the mortgage most people think of when they buy, with up to 20% down and stringent credit and income guidelines
- VA Loan: For active military and veterans of the armed services, this loan offers zero or low down payments, more flexible credit guidelines and low fees
- USDA Loan: Often overlooked, this loan is guaranteed by the federal government and offers low down payments and more flexible credit guidelines for rural and a surprising number of suburban areas in the US
- FHA Loan: Particularly well suited for first-time home buyers, this product combines low down payments with more flexible credit guidelines and low closing costs
One or more of these loan types might match your needs; your loan officer can help you determine which one would be best for your needs and finances.
Find a Lender
Research lenders and mortgage brokers to find one you like. Your home may very well be your most important investment, so the person or team you’ll be working with can have a big impact on your future. Find someone who can answer your questions, communicates well and who is experienced and knowledgeable about the process. The right lender will enjoy working with a first-time home buyer and be able to walk you through the process and answer your questions.
Get Pre-Approved or Pre-Qualified
Talk with a mortgage loan officer or broker to learn about your options and secure a pre-approval or pre-qualification. Having a pre-approval or pre-qualification letter in hand allows you to make a serious offer when you find a home you love; that letter could be the difference between the seller accepting your offer and choosing an offer from another, more qualified buyer. For a pre-approval, you’ll need to provide some documentation, including your pay stubs, tax returns and more details for your lender.
Choose a Neighborhood
The figures you and your lender come up with can be used to determine where you can shop for your home and help you pinpoint a neighborhood. Consider the look and feel of the homes, the commute to work and even the local school district as you research; these factors will all impact the cost and your ability to enjoy your first home.
Work With a Real Estate Agent or Realtor
A realtor can help you zero in on the right home; as real estate professionals, they’ll already be familiar with the different neighborhoods and listings that are in your price range and can help you find the right home for you. A buyer’s agent won’t cost you anything but will help you secure the right home for your family, needs and budget.
Find a Home You Love
Work with the realtor to find a property you love and crunch the numbers to get specific details on your monthly payment, closing costs, taxes and other expenses. These figures and your realtor will help you determine how much to offer and learn how much you’ll need to have available to close on the home. Don’t forget to ask about utility bills; the homeowner should be able to provide bills from the last year. A home with affordable energy costs in winter could be a nightmare to cool in summer, so you need a full year of costs to get the true picture. Use this information to be sure the home is affordable.
Make an Offer
Your agent will draft an offer for the home; this offer needs to be accepted by the home seller before you can proceed. Once accepted, you can work with your lender to complete the residential mortgage application process.
Get an Inspection
Whether your online mortgage lender requires it or not, an inspection can help ensure the home you are buying is in good condition and reveal any trouble spots long before you get to the closing stage.
Once the lender has everything they need from you, the underwriting process begins. At this point, you’ll stay in communication with your lender and real estate agent and may be asked to provide additional documentation or pay stubs.
Your lender will work on the legal and financial details, from performing title research to ordering an appraisal of the home and should keep you up to date on the details. Once this process is done, you’ll be ready to close on your first home.
The process is complex, but taking it step by step and working with real estate and lending professionals who communicate well and who are used to working with first-time home buyers simplifies things. Once complete, you’ll be able to reap the rewards of home ownership and enjoy one of the largest and hopefully best investments you’ll ever make.