Tips for First Time Home Buyers
First-Time Home Buyers – Read This!
Buying a home can be nerve-racking, especially if you’re a first-time home buyer.
These tips will help you navigate 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 now permit much less, and first-time home buyer programs allow as little as 3% down. But putting down less than 20% may mean higher costs and paying for mortgage insurance, and even a small down payment can still be hefty. For example, a 5% down payment on a $200,000 home is $10,000.
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 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.
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.
Mortgage Application Tips
1. Determine how much home you can afford
Before you start looking for your dream home, you need to know what’s within your price range. Search mortgage calculators in google for a free tool to calculate how much house you can afford.
2. 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. 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.
3. 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. 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.