Buying a home can be nerve-wracking, especially if you’re a first-time home buyer. Not only is it probably the biggest purchase of your life, but the process is complicated and often raises many questions. To make your buying journey a little less stressful, here is 10 tips to help you navigate the process more smoothly.
1. Start saving for a down payment early
It’s common to put 20% down, but many lenders now permit certain FHA/Conventional loans to put as low as 3-5% down. Either way the down payment isn’t going to come easy so saving early will help you prepare. Play around with a down payment calculator to help you land on a goal amount. Some tips for saving for a down payment include setting aside tax refunds and work bonuses or setting up an automatic savings plan and using an app to track your progress.
2. Check your credit
When you’re taking out 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. Check your credit before you begin the home buying 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.
3. Pause any new credit activity
Any time you open a new credit account, whether to take out an auto loan or get a new credit card, the lender runs a hard inquiry, which can temporarily ding your credit score. If you’re applying for a mortgage soon, avoid opening new credit accounts to keep your score from dipping.
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. Use a home affordability calculator to determine how much you can safely afford to spend.
5. Explore your down payment options
Struggling to come up with enough money for a down payment can be stressful. There are first-time home buyer programs out there that can help if you qualify – including federal mortgage programs with Fannie Mae and Freddic Mac that allows loans with only 3% down, plus Federal Housing Administration loans and Veteran Affairs loans. You could also try asking if family members are willing to pitch in with a gift.
6. 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 tax credits, low down payment loans and interest free loans up to a certain amount. Ask your lender to find out what programs are in your area that you could qualify for.
7. Budget for closing costs
In addition to having to put a down payment down, you’ll need to budget for the money required to close your mortgage. Closing costs typically run between 2-5% of your loan amount. You can try and defray costs by asking the seller to pay for a portion of your closing costs.
8. Set aside more money for after move-in
At this point you may have wished money grew on trees but we are here to make sure you have put enough money aside for a down payment, closing costs, and now money for home shopping. This includes furnishings, rugs, updated fixtures, new paint, new furniture, fixes that may be needed, appliances and any other touches you’ll want to have when you move in.
9. Consider what type of property to buy
Take a look at your options and see what is a better fit for you. If you’re looking for a large lot or a lot of room you’ll want to go with a single-family home. But if you’re willing to sacrifice space for less maintenance and extra amenities and don’t mind paying a homeowners association fee you may want to go with a condo or townhouse.
10. Research mortgage options
Typically most go with a 30-year, fixed rate mortgage but there are many other loan types that may be right for you. If you can afford larger monthly payments, you can get a lower interest rate with a 15 or 20-year fixed loan. Or you may prefer an adjustable-rate mortgage, which is riskier but guarantees a low interest rate for the first few years of your mortgage.