13 Tips for First-Time Homebuyers
Tips for First-Time Homebuyers
1. Save Early
When saving money for your dream home, here are the top costs to be aware of:
When applying for a mortgage, the type of mortgage will determine how much down payment is necessary. Conventional loans that target first-time home buyers with good credit often require down payments of 3% or greater; even modest amounts like this can prove challenging to save up – say 3% on a $300,000 home would require $9000. To get started, determine the amount you will need, then set up automatic transfers into savings from checking accounts when your pay comes in.
You will need to add closing costs to your down payment.
Closing costs are fees and expenses you pay to close your mortgage. They typically range between 2% and 6% of the loan amount, so for a $240,000 loan, closing costs could range anywhere from $4,800 to $14,400 – an additional amount you must pay on top of your downpayment. In a buyer’s market, you may ask the seller to cover some or all of these costs; this allows you to save money for items like home inspections.
Many states, cities and counties offer programs for first-time homebuyers. These may include low-interest mortgages or downpayment assistance. Some even provide tax credits! We have a page dedicated to first-time homebuyer programs.
Down Payment Assistance programs can help cover some of your down payment and closing costs. To review available options, visit our First Time Home Buyer Page.
After purchasing your home, you will require cash to cover move-in expenses. Be sure to set aside money for any immediate repairs as well as upgrades and furnishings.
2. Calculate Your House Affordability
Before beginning to search for a home, determine how much money you can comfortably spend. Most loan programs limit your total debt to income level to roughly 45%. First, add all the monthly payments you would see on your credit report, then add the mortgage principal and interest, taxes, insurance, mortgage insurance, and HOA fees together. This is your total debt to income. Divide that number by your total income, and that would be your debt-to-income ratio.
3. Enhance Your Credit Rating
Your credit score plays a major role in determining whether or not you qualify for a mortgage and the interest rates lenders provide. A higher credit score usually results in lower monthly payments. So take these steps to boost your score so you can buy a house with peace of mind!
Each credit bureau — Experian, Equifax, and TransUnion — provides free credit reports. Furthermore, you have the option to dispute errors that could have an adverse effect on your credit score.
Make sure to pay all bills promptly and keep your credit card balances low.
Credit cards that are open should remain so. Closing a credit card could potentially reduce your score.
Tips for Selecting a Mortgage
4. Gain Knowledge About Available Mortgage Options
There are various mortgage options available, each with different down payments and eligibility requirements. Here are the major categories:
Government guarantees are not provided for conventional mortgages, although first-time homebuyers may be eligible for these loans with as little as a 3 percent down payment.
FHA loans are insured by the Federal Housing Administration and allow for down payments as low as 3.5% for scores down to 580, with 10% down the score can be as low as 500.
USDA loans are guaranteed by the U.S. Department of Agriculture and available to rural home buyers with no down payment requirement.
Veterans Affairs provides VA loans, which are accessible to both current and former military personnel with no down payment requirement.
When choosing a mortgage term, there are various options. A 30-year fixed-rate mortgage is the most popular choice among home buyers as this loan can be paid off within 30 years and offers the flexibility of paying more for an earlier pay off. On the other hand, 15-year mortgage payments tend to be higher than 30-year ones but have lower annual percentage rates.
If interest rates are on the rise, an adjustable-rate mortgage (ARM) might be a viable option. Fixed rates tend to be more common than ARM rates and allow you to purchase a more expensive house for the same monthly payments. However, keep in mind that rates may change over time.
5. Compare mortgage rates and fees
To compare costs and interest rates, the Consumer Financial Protection Bureau suggests requesting loan estimates from multiple lenders for the same type of mortgage. Remember, to accurately compare rates and fees, you need to do so on the same day and interest rates change frequently.
Lenders might offer you to purchase discount points. These are fees that borrowers must pay upfront to reduce their interest rate. If you have the cash and plan to stay in your house for some time, buying points could be a viable option. To help make an informed decision, work with an experienced loan officer that has mortgage analysis software at their disposal. The Richard Woodward Mortgage Team provides this benefit to all our clients.
In a buyers’ market, some sellers may offer to cover part or all of the buyer’s points in order to help close the deal. This is commonly referred to as a seller buy down.
6. Request a pre-approval letter
A pre-approval is an agreement from your lender to lend you money at certain terms. Having this document shows home sellers and agents that you are serious about purchasing the property, giving you an edge over other potential buyers who haven’t taken this step yet.
Once you are ready to begin home shopping, apply for a pre-approval from multiple lenders to compare rates. Lenders will review your documents and pull your credit report in order to verify income, assets, and debt; pre-approval won’t impact your credit score as long as done within a reasonable timeframe such as 30 days.
Shopping Tips for Home
7. Select a Real Estate Agent Carefully
A knowledgeable real estate agent will assist you in finding the home that meets your needs, then guide you through negotiations and closing. Ask potential agents for referrals from past homebuyers. Ask them for references and interview at least three agents. Inquire about their experience helping first-time home buyers locate homes. Additionally, inquire how they plan to assist you; it might be beneficial to ask how they locate homes not currently on the market as this can prove advantageous in competitive markets.
How to Find a Real Estate Agent
Referrals are the best resource. Ask your lender who they would refer, they work with multiple Realtors every day. Google is great too but make sure so look for Google reviews.
8. Select the Correct House Type and Neighborhood
Take into account the pros and cons of each type of home when considering which is best suited to your budget and lifestyle. While condominiums or townhomes might be cheaper than single-family homes, shared walls with neighbors will give you much less privacy. When shopping for condos or houses in gated or planned communities, be sure to factor in homeowners association costs as well.
Fixer-uppers are another viable option. This type of single-family house needs repairs or updates and tend to be less expensive than move-in-ready homes, though you will have to budget extra for remodeling and repairs. Renovation mortgages provide financing for both the purchase price of your home as well as any improvements needed.
Make a decision about whether you want to build, purchase or renovate.
When selecting a home, take into account your long-term goals and whether a starter or forever home would serve you best. If you plan to expand or start a family, it may be wise to purchase a larger property.
Conduct your due diligence when researching potential communities. Consider what amenities are important to you, such as schools or entertainment, and then test how difficult it would be to get to work during rush hour traffic.
9. Stay within Your Budget
You may be offered more money than you can afford by a lender or feel pressured into spending beyond your means to match another buyer’s offer. To avoid financial stress, set a price range within your budget and stay committed to it.
When bidding in a competitive market, you might consider viewing properties below your price limit. In a buyer’s market, you may even have the opportunity to view homes slightly above this amount. A real estate agent can suggest an appropriate range for you.
10. Open Houses Are an Excellent Way to Take Advantage of Them
With technology advancing, 3D online home tours are becoming increasingly popular. These allow shoppers to virtually tour a property at any time and view details not visible in photos. Although these tours don’t provide all the information that in-person visits provide–like how carpets smell–they can help narrow down which properties they want to view.
When visiting homes, be mindful of your senses. Pay attention to noises and smells, then take a look inside and outside the house. Inquire about the age and type of plumbing and electrical systems as well as the roof’s age and condition.
Tips for Successful Home Purchasing
Are you thinking about purchasing a home? Here are some helpful hints!
11. Home Inspections Can Be Paid
A home inspection involves a detailed assessment of the structure and its mechanical systems. A professional inspector will check for any potential issues so you can make an informed purchase decision. Here are some essential things to remember:
Standard inspections do not detect pests, radon or mold. Be sure to inquire with your agent about any additional inspections that might be needed.
Make sure your inspectors have access to all areas of the house, including the roof and crawl spaces.
Buyers are encouraged to attend home inspections. Doing so can give you a better insight into your home and give the inspectors more questions to ask, even if you cannot attend in person. Reviewing inspection reports and asking additional questions in advance is also recommended if you cannot make it in person.
12. Negotiate with the Seller
Asking your seller to cover repairs in advance can save you money, or lower the price to include any necessary fixes. They may even cover some of your closing costs; just remember that lenders might limit how much they’ll cover.
Your local market will determine your negotiating power. When there are more homes for sale than buyers, it can be more challenging to negotiate a good deal. Your real estate agent can help you understand this dynamic and plan accordingly.
13. Make Sure You Have Enough Home Insurance
Your lender requires that before closing the deal, you purchase homeowners insurance. This covers any damages to belongings or your home that occur in an accident; and if liability coverage is available in case you’re held accountable for an incident. To make sure your house has enough protection in case it’s destroyed in a fire, ensure you have enough coverage in case it needs replacing.
If you own major assets such as homes, cars or other property, it may be beneficial to purchase umbrella insurance.
The Richard Woodward Team is happy to offer these tips and processes. If you need help getting approved and would like a copy of our Home Buyer Handbook, just call or email us, and we will send it right out to you.
Richard Woodward
Branch Manager, NMLS 217454
Your 5-Star Rated Mortgage Lender
Voice/Text: (214) 945-1066
Nexa Mortgage NMLS# 1660690
7820 Hague Ct Plano, TX 75025
