First Time Home Buyer Advice
Home Buying Advice
Mortgage advice for first time home buyers.
Advice for First Time Home Buyers
Buying a home is easily one of the biggest purchases that most people make. Although it can be an exhilarating experience, it can also be stressful – especially for first time home buyers. Sometimes it can seem as if there are more questions than answers as you travel down the home buying path, but rest assured that with the right guidance you will make it through the process.
First time buyers often have questions regarding finances, mortgage options, how to find a trusted real estate agent, along with many other considerations. Do yourself a favor and follow these tips to make the process as smooth as possible – you’ll be glad you did.
Check Your Credit Report
One of the first things you’ll need to do is get ahold of your credit report. You can get one free credit report each year from each of the major credit reporting agencies. Those agencies are Equifax, TransUnion, and Experian. By getting your credit report you can take a clear look at your credit history – which is exactly what your lender is going to do when you apply for a mortgage. Be sure to check closely for any errors or inaccuracies and then fix them. Errors on a credit report can lead to a lower credit score – and might cost you more money due to higher interest rates. In some cases, those errors might actually hurt your chances of getting approved for a mortgage.
Although you’ll get a copy of your report for free, you will have to pay a small fee to get your score. It is worth it to do this, as lenders will look at your score to determine your creditworthiness. A higher score generally means you will get approved for a higher loan amount and a lower interest rate – and that’s a win-win situation. A lower score could mean you get approved yet have a higher interest rate – which means you’ll pay more over the length of the loan. A lower credit score indicates to lenders that you may be a higher risk to them – and that’s something that many lenders won’t take a chance on.
Lenders don’t just look at your credit score. They will look at all of your financials, including the loans you currently have, such as car loans and student loans. Lenders look at your income to debt ratio to determine how much you qualify for. They will look at your payment history and your employment history as well.
Take an Honest Look at Your Finances
Buying a home is a huge responsibility. And unlike renting, there’s no landlord to call in the middle of the night if the pipes burst or the refrigerator goes on the fritz. You’ll be paying a monthly payment to the lender, but you’ll also be responsible for taxes and all the utilities, plus homeowners insurance and any other incidentals. Can you afford to buy a home right now? Look over your income, your bills and monthly expenses (including entertainment, cell phone bills, student loans, etc.), and your savings. You’ll need to do this – because any potential lenders are going to do it and they will most likely have questions.
You’ll also want to think about having a decent sized down payment. Yes, you can get a mortgage without having to put down thousands of dollars, but if you have less than a 20% down payment you’ll most likely be subjected to private mortgage insurance (PMI). This is an extra premium you’ll pay the lender each month until your loan to value ratio is 80%. For example, let’s say you want to buy a home that is $100,000, but you only have $10,000 to put down. This means you’ll be borrowing $90,000. At the time of your closing, your lender will be required to tell you exactly how much extra your PMI will be each month. (It is usually rolled into the monthly mortgage payment.) They will also be required to tell you how long it will take until you reach the 80% loan to value amount. Keep in mind that if you pay extra on your mortgage each month, you will reach that point even sooner. Either way, keep track of the payments that you make and how much they go toward the principal on your loan. By doing so, you will save money in the long run.
Get Prequalified For A Home Loan
Before you actually start looking at houses, you’ll probably want to get pre-approved for a loan. This will help you determine your budget and might even help you narrow down the search area. It can also help you to avoid disappointment. For example, let’s say that you find a home that you fall in love with and it costs $350,000. So then you go to a lender, who only approves you for $200,000. That can be a difficult situation. But by getting pre-approved, you can avoid that situation and go into the home buying process with your eyes wide open and your options clearly outlined for you, as least in terms of loan amounts.
Find A Trusted Real Estate Agent
Finding an agent can be one of the most simple things you can do. Ask your friends, family, and co-workers who they have used. If one name keeps being mentioned over and over in a positive manner, get ahold of that agent and schedule an interview. You’ll want an agent that will do more than just show you houses – your agent can also help you get in touch with a lender if you haven’t done so. And don’t forget that your agent will work for you – so be up front as possible about your likes and dislikes as well as the types of homes that will fit into your lifestyle. Also keep in mind that this is your FIRST place – you may not be here forever. And you may not get everything on your wish list the first time out. The important thing to remember is that by buying your first home, you are entering into the real estate market – and your first home is often a stepping stone to bigger and brighter options in the future.
Everyone’s path to home ownership is different. But by examining your credit report, determining your score, going over your finances, finding a trusted lender, and working with a hard-working agent who knows what you want, you can find your first home and feel good about the process.