Buying your first home is exciting but can feel a bit overwhelming. If you’re ready to become a homeowner but unsure where to start, these simple tips will help you navigate the process smoothly.
Getting Ready to Buy: Simple Steps
1. Start saving money early.
When figuring out if you can afford to buy a home, think about the one-time expenses and regular bills. Here are the main costs to consider when saving money for a property:
- Down Payment: When you buy a house, you usually have to pay a down payment. This amount depends on the type of mortgage and the bank. Some loans for first-time buyers with excellent credit ask for as little as 3% down. But even a small down payment, like 3% on a $300,000 home (which is $9,000), can be hard to save up. You can use a down payment calculator to figure out how much you need and set up automatic transfers from your checking account to start saving.
- Closing costs: The fees you have to pay to secure your mortgage, usually ranging from 2% to 6% of the loan amount. For a $300,000 loan, these costs could be between $6,000 and $18,000. It’s additional money you need to pay on top of your down payment. In a market that’s favorable to buyers, you can sometimes ask the seller to help with these costs. Also, comparing prices can help you save money on things like home inspections.
- Moving Expenses: Make sure to set aside money for moving expenses, which usually go up to $2,500 for local moves. If you’re moving a long distance, it could cost even more. You’ll also need some extra money after buying the house for things like immediate repairs, improvements, and buying furniture.
2. Figure out how much you can afford to spend on a house.
Before you start looking for a home, figure out how much you can afford. You can use a home affordability calculator to help you set a price range based on your income, debts, down payment, credit score, and where you want to live.
3. Check and improve your credit.
Your credit score determines if you can get a mortgage and affects the interest rate you’ll be offered. A higher score usually means a lower interest rate. To improve your credit for buying a house, follow these steps:
Get free copies of your credit reports from the three main credit bureaus – Experian, Equifax, and TransUnion. Check for any mistakes that might hurt your credit score and dispute them.
- Pay your bills on time and keep your credit card balances as low as possible.
- Don’t close existing credit cards. Closing a card can increase the percentage of your available credit you’re using, which might lower your credit score.
- Avoid opening new credit accounts when you’re applying for a mortgage. Opening new accounts could lead to a hard inquiry on your credit report and reduce the overall average age of your credit accounts, potentially hurting your score.
- Monitor your credit score regularly. Some platforms offer a free credit score that updates weekly.
4. Considerations for Choosing a Mortgage.
Look into different mortgage choices.
There are different types of mortgages, each with different rules for how much you need to pay upfront and who can qualify. Here are the main types:
- Conventional mortgages: These are common home loans that aren’t guaranteed by the government. Some types of conventional loans for first-time buyers might only ask for a 3% down payment.
- FHA loans: These loans are backed by the Federal Housing Administration and allow for down payments to be less redundant.
- VA loans: These loans are backed by the Department of Veterans Affairs and usually don’t need a down payment or mortgage insurance. However, they are only for veterans, active-duty service members, and some surviving spouses.
- USDA loans: These loans, supported by the U.S. Department of Agriculture, are for homebuyers in rural areas and typically don’t need a down payment.
Keep in mind, each type of loan has its own rules and conditions, so it’s important to research and understand what you qualify for.
5. Get Pre-approved for a mortgage.
Before you begin looking for a house, think about getting preapproved for a mortgage. Preapproval is a document from a lender that tells you how much you can probably borrow after they’ve looked at your credit and financial information. It makes you stand out in a competitive market because it shows sellers that you’re serious and able to afford their home.
Selecting Your Home: Helpful Tips
6. Choose the Right Type of House and Neighborhood for Your Needs.
Consider the type of home you want – whether it’s a single-family house, a townhouse, a condo, or a multi-family building. Each type has its advantages and disadvantages, from maintenance to cost to privacy.
Also, think about the neighborhood. Do you want to be near schools or work? Is safety important to you? What about access to amenities like shops, restaurants, parks, or public transportation? It’s not just about the home; the location matters too.
7. Get Help from a Real Estate Agent.
For first-time homebuyers, the real estate market can be complicated. That’s where a real estate agent can help. They’ll guide you through the process, offer valuable advice, and assist you in finding and securing your dream home. The best part is, as a buyer, you often don’t have to pay for a real estate agent – the seller usually covers their commission.
After Buying: Things to Think About
8. Create a Backup Fund.
In addition to your down payment and monthly mortgage payments, owning a home comes with various other costs like property taxes, insurance, maintenance, and repairs. It’s crucial to set up a contingency fund to handle these expenses and any unexpected costs that may come up.
9. Don’t Fear Home Maintenance.
Taking care of a home can feel overwhelming for first-time homeowners. Yet, knowing the basics of home maintenance can save you money in the long term. There are plenty of online resources and guides to help you learn about various aspects of home maintenance, including do-it-yourself repairs and seasonal tasks.
10. Savor Your Home!
Purchasing a home is a big decision. Take the time to research, understand your options, and make the right choice. These expert tips for first-time homebuyers will help those new to property ownership. Good luck!