Tips for First-Time Home Buyers

Dated: 08/10/2020

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Tips for First-Time Home Buyers

 

Buying a home can be stressful, even more if you're a first-time home buyer.

Don’t worry though, because with these tips, you’ll be able to learn how to navigate through the process, save money and avoid common mistakes. 

 

Mortgage down payment tips

 

1. Start saving for a down payment early

It’s common to put 20% down, but many lenders will now allow you to do less, and first-time home buyer programs allow as little as 3% down. But remember, putting down less than 20% may mean higher costs and paying for mortgage insurance. Plus, even a small down payment can still be hefty. For example, a 5% down payment on a $200,000 home is still $10,000.

 

Some good tips for saving for a down payment include setting aside tax refunds and work bonuses, setting up an automatic savings plan and using an app to track your progress.

 

2. Explore your down payment and mortgage options

There are lots of mortgage options out there, each with its own combination of pros and cons. If you’re struggling to come up with a down payment, check out these different type of loans:

 

Conventional mortgages

  • They conform to standards set by the government-sponsored entities Fannie Mae and Freddie Mac, and require as little as 3% down.

FHA loans

  • Loans insured by the Federal Housing Administration permit down payments as low as 3.5%.

VA loans

  • Loans guaranteed by the Department of Veterans Affairs sometimes require no down payment at all.

 

Remember, making a higher down payment will mean having a lower monthly mortgage payment.

 

If you want the smallest mortgage payment possible, opt for a 30-year fixed mortgage. But if you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan. Or you may even prefer an adjustable-rate mortgage, which is riskier but guarantees a low interest rate for the first few years of your mortgage.

 

3. Research state and local assistance programs

In addition to federal programs, many states offer assistance programs for first-time home buyers with perks such as down payment assistance, closing cost assistance, tax credits and discounted interest rates. Your county or municipality may also have first-time home buyer programs.

 

Mortgage application tips

 

4. Determine how much home you can afford

Before you start looking for your dream home, you need to know what’s actually within your price range. It’s worth sitting down and going over your finances to make sure you know exactly how much you’re currently spending and saving on a month to month basis.

 

5. Check your credit and pause any new activity

When applying for a mortgage loan, your credit will be one of the key factors in whether you’re approved, and it will help determine your interest rate and possibly the loan terms.

So, check your credit before you begin the homebuying process. Dispute any errors that could be dragging down your credit score and look for opportunities to improve your credit, such as making a dent in any outstanding debts.

To keep your score from dipping after you apply for a mortgage, avoid opening any new credit accounts, like a credit card or auto loan, until your home loan closes.

 

6. Compare mortgage rates

Many home buyers get a rate quote from only one lender, but this often leaves money on the table. Comparing mortgage rates from at least three lenders can save you more than $3,500 over the first five years of your loan, according to the Consumer Financial Protection Bureau. Get at least three quotes and compare both rates and fees.

 

As you’re comparing quotes, ask whether any of the lenders would allow you to buy discount points, which means you’d prepay interest up front to secure a lower interest rate on your loan. How long you plan to stay in the home and whether you have money on-hand to purchase the points are two key factors in determining whether buying points makes sense. 

 

7. Get a preapproval letter

You can get pre-qualified for a mortgage, which simply gives you an estimate of how much a lender may be willing to lend based on your income and debts. But as you get closer to buying a home, it’s smart to get a preapproval, where the lender thoroughly examines your finances and confirms in writing how much it's willing to lend you, and under what terms. Having a preapproval letter in hand makes you look much more serious to a seller and can give you an upper hand over buyers who haven’t taken this step.

 

House shopping tips

 

8. Hire the right buyer's agent

You’ll be working closely with your real estate agent, so it’s very  important you find someone you get along with well. The right buyer's agent should be highly skilled, motivated and knowledgeable about the area you’re interested in. 

 

9. Pick the right type of house and neighborhood

You may assume you’ll buy a single-family home, and that could be ideal if you want a big yard or a lot of room. But if you’re willing to sacrifice space for less maintenance and extra amenities, and you don’t mind paying a homeowners association fee, a condo or townhouse could be a better fit.

 

But even if the home is right, the neighborhood could be all wrong. So be sure to:

 

  • Research nearby schools, even if you don’t have kids, since they affect the home value.

  • Look at local safety and crime statistics.

  • Map the nearest hospital, pharmacy, grocery store and other amenities you’ll use.

  • Drive through the neighborhood on various days and at different times to check out traffic, noise and activity levels.

 

10. Stick to your budget

Look at properties that cost less than the amount you were approved for. Although you can technically afford your preapproval amount, it doesn’t account for other monthly expenses or problems like a broken dishwasher that can break during homeownership, especially right after you buy. Shopping with a firm budget in mind will also help when it comes time to make an offer.

 

In a competitive real estate market with limited inventory, it’s likely you’ll bid on houses that get multiple offers. When you find a home you love, it’s tempting to make a high-priced offer that’s sure to win. But don’t let your emotions take over. Shopping below your preapproval amount creates some wiggle room for bidding. Stick to your budget to avoid a mortgage payment you can’t afford.

 

11. Make the most of open houses

When you're looking through homes during open houses, pay close attention to the home’s overall condition, and be aware of any smells, stains or items in disrepair. Ask a lot of questions about the home, such as when it was built, when items were last replaced and how old key systems like the air conditioning and the heating are.

If other potential buyers are viewing the home at the same time as you, don’t hesitate to schedule a second or third visit to get a closer look and ask questions privately. 

We agree that buying a home for the first time can be stressful. However, not impossible to do. Stick to these tips to be able to purchase your own house on your own terms. After all, why not pay a monthly payment that will lead you to owning a home instead of paying someone else’s mortgage while renting? 

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Mary Gonzalez

Mary Gonzalez has a heart of gold and unbridled enthusiasm. She’s proud to be part of the HTR family. Her many years in legal services has prepared her to deliver the high quality customer service t....

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