Five Tips for First-Time Home Buyers
5 Tips for First-Time Home Buyers
Buying your first home is a huge accomplishment! It’s an exciting step that you’ve probably been thinking about (and saving up for) for a long time. But for most first-time buyers, buying a home can feel overwhelming – and you’re certainly not alone in feeling this way.
If you’re getting ready to purchase your first home, here are five tips to help you prepare for a successful, stress-free home-buying experience:
1. Figure Out What You Can Afford
Before you do anything else, it’s crucial to figure out what your budget looks like. Start by using a mortgage calculator to get a rough estimate of your desired monthly payment. Then, meet with a lender to get a clearer understanding of what you can afford. They’ll walk you through different loan options and down payment scenarios, which will help you set savings goals and prepare for other home-buying expenses.
For most first-time buyers, the goal is to find a comfortable monthly payment (including taxes, HOA fees, etc.), so consider your monthly payment more than the purchase price!
2. Save for Closing Costs
Your down payment does not cover closing costs, so this money must be set aside as well. Closing costs, which usually total around 1-3% of the purchase price, include the appraisal, transfer fees, loan origination fees, and other costs associated with the transaction. Your lender will give you a specific number so you know exactly what you need to bring on closing day.
If you’re buying new construction, the builder’s preferred lender may help cover some of your closing costs!
3. Explore Different Financing Options
Don’t wait until you’ve found your dream home to figure out how you’re going to finance it. The time to explore different financing options is now. There are many loan options out there – it’s just a matter of weighing the pros and cons to find what works best for you.
As a first-time home buyer, you may not have a large down payment, but that doesn’t mean you have to delay homeownership! Some states offer first-time buyers down payment assistance, tax credits, or home buyer grants. Some lenders even offer reduced mortgage rates for first-time buyers. Be sure to ask your lender to break down each loan option in detail, so you can compare and make the best financial decision.
4. Get Your Credit on Point
Your credit is one of the key factors in your loan approval – the better your credit score, the better your loan terms. Here’s how to prepare:
Pay off debt. Start by getting your credit card balance as low as possible.
Avoid opening new credit accounts (like a credit card or auto loan).
Avoid major purchases that increase your outstanding credit card balance.
The lender’s mortgage decision is based on your credit score and your debt-to-income (DTI) ratio, which is the percentage of your income that goes towards monthly debt payments. So, the higher your credit score and the lower your DTI, the better your interest rate and financing terms. Request a free credit report from one of the three main credit bureaus: Equifax, Experian, and TransUnion. Review the report for any errors.
5. Shop Lenders
Before you shop for your home, you’ll want to shop for your lender. Your lender should be one of your most trusted advisors. Take the time to choose the right lender who understands your goals and offers favorable terms.
Interest rates, closing costs, and loan origination fees vary from lender to lender. When interviewing lenders, ask them for an itemized list of loan origination fees and estimated closing costs. You may find a significant difference between quotes!
Pro tip: All mortgage applications made within a 45-day window count as just one credit inquiry, so take advantage of this and shop around!
Final Thoughts
Buying your first home is a big deal, but you can do it! Follow these steps, and you’ll be well on your way to becoming a happy first-time homeowner. Let’s do this!