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Tips for First-Time Homebuyers
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. We organized them into four categories:
- Mortgage down payment tips.
- Mortgage application tips.
- House shopping tips.
- First-time home buyer mistakes to avoid.
Mortgage down payment tips
1. Start saving for a down payment early
Commonly, a 20% down payment is required, although many lenders now permit much less, and some first-time homebuyer programs only require a 3% down payment. However, putting down less than 20% could result in higher fees and private mortgage insurance premiums, and even a modest down payment can be costly. For instance, a 5% down payment on a $200,000 home would amount to $10,000.
Our mortgage calculator can assist you in determining a target amount. Among the suggestions for saving for a down payment are setting aside tax refunds and job incentives, establishing an automatic savings plan, and utilizing an app to track your progress.
2. Explore your down payment and mortgage options
There are lots of mortgage options out there, each with their own combination of pros and cons. If you’re struggling to come up with a down payment, check out:
- Conventional mortgages that conform to standards set by the government-sponsored entities Fannie Mae and Freddie Mac, and require as little as 3% down.
- Federal Housing Administration loans, which permit down payments as low as 3.5%.
- Veterans Affairs loans, which sometimes require no down payment at all.
Your down payment also affects your monthly mortgage payment and your interest rate. Choose a 30-year fixed mortgage if you want the lowest feasible monthly payment. However, if you can afford greater monthly payments, you can get a cheaper interest rate on a 20-year or 15-year fixed loan. Alternately, you can select an adjustable-rate mortgage, which is riskier but ensures a low interest rate for the first few years of the loan.
3. Research state and local assistance programs
In addition to federal programs, many states offer assistance programs for first-time homebuyers that include down payment aid, assistance with closing costs, tax credits, and reduced interest rates. Your county or municipality may also provide programs for first-time homebuyers.
Mortgage application tips
4. Determine how much home you can afford
Before you begin your search for your dream home, you must determine what you can afford.
5. Check your credit and pause any new activity
When applying for a home loan, your credit score will be one of the deciding elements, as well as a factor in determining your interest rate and possible loan terms.
Before beginning the home-buying process, you should check your credit. Dispute any errors that may be weighing down your credit score, and search for ways to enhance your credit, such as paying down any outstanding bills.
To prevent a drop in your credit score after applying for a mortgage, refrain from adding additional credit accounts, such as credit cards or auto loans, until your house loan closes.
6. Compare mortgage rates
Numerous homebuyers obtain a rate quote from a single lender, which frequently leaves money on the table. The Consumer Financial Protection Bureau reports that comparing mortgage rates from at least three lenders can save you more than $3,500 over the first five years of your loan. Obtain at least three bids and compare rates and costs.
Ask whether any of the lenders will allow you to purchase discount points, which means you’ll prepay interest up front to achieve a cheaper interest rate on your loan. Two of the most important variables in assessing if buying points makes sense are the length of time you intend to reside in the home and your ability to pay for the points.
7. Get a pre-approval letter
You can be pre-approved for a mortgage, which basically provides an estimate of how much a lender could be willing to offer you based on your income and debts. As you come closer to purchasing a home, though, it is prudent to obtain a pre-approval, in which the lender evaluates your finances carefully and verifies in writing how much it is willing to lend you and on what circumstances. Being in possession of a pre-approval letter makes you appear more serious to a seller and can give you an advantage over other buyers who have not taken this step.
House shopping tips
8. Hire the right buyer’s agent
Because you will be working directly with your real estate agent, it is crucial that you pick someone with whom you get along well. The ideal buyer’s agent should be highly skilled, highly motivated, and well-versed in the local area.
9. Pick the right type of house and neighborhood
You may presume you’ll purchase a single-family home, which could be excellent if you desire a large yard or ample space. But if you’re ready to trade square footage in exchange for less upkeep and other facilities, and you don’t mind paying a homeowners association fee, a condo or townhouse may be a better option.
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 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
Consider properties that cost less than your approved loan amount. Although you can technically afford your pre-approval amount, it does not account for other monthly expenses or problems, such as a broken dishwasher, that may develop during homeownership, particularly immediately after your purchase. Having a set budget in mind while shopping can also be beneficial when it comes time to make an offer.
In a competitive real estate market with limited inventory, it is likely that you may compete with multiple bidders for houses. When you locate a property you adore, it can be tempting to make a high-priced offer that is certain to be accepted. However, do not let your emotions control you. Purchasing below the amount of your pre-approval offers some wriggle room for bidding. Stick to your budget to prevent an unaffordable mortgage payment.
11. Make the most of open houses
During open houses, pay special attention to the home’s overall condition and be alert of any unpleasant odors, stains, or broken items. Ask several questions about the home, such as when it was constructed, when items were last replaced, and the age of major systems such as the air conditioning and heating.
If there are other possible buyers visiting the home at the same time as you, don’t hesitate to schedule a second or third visit to have a closer look and ask questions in private.
First-time home buyer mistakes to avoid
With so much to consider, it is not surprising that some first-time homebuyers make choices they later come to regret. Here are a handful of the most prevalent hazards, as well as some advice for avoiding them.
12. Not budgeting for closing costs
In addition to saving for a down payment, you will also need to budget for the closing costs, which can be substantial. Typically, closing expenses range between 2 and 5 percent of the loan amount. Certain closing costs, such as homeowner’s insurance, house inspections, and title searches, can be shopped around and compared to one another. You can also defray costs by asking the seller to pay for a percentage of your closing costs or by lowering the commission for your real estate agent. Calculate your anticipated closing costs to assist you in establishing a budget.
13. Not saving enough for after-move-in expenses
After you’ve saved for a down payment and planned for closing fees, you should also set aside a cushion to pay for the interior furnishings. This includes furniture, appliances, rugs, updated fixtures, fresh paint, and any post-move-in changes you may like to make.
14. Buying a home for today instead of tomorrow
It’s easy to look at properties that fit your present needs. However, if you intend to create or increase a family, it may be advisable to purchase a larger home now. Consider whether the home you’re considering will accommodate your future demands and desires.
15. Passing up the chance to negotiate
There is much room for negotiating during the home-buying process, which can result in substantial savings. Are there any big repairs that the seller would be willing to pay for, either by completing them or by providing you a credit at closing? Will the seller pay for some of the closing costs? In a buyer’s market, the seller may be willing to negotiate to remove the home from the market.
16. Not knowing the limits of a home inspection
After your offer is accepted, you’ll pay for a home inspection to examine the property’s condition inside and out, but the results will only tell you so much.
- Not all inspections test for things like radon, mold or pests, so be sure you know what’s included.
- Make sure the inspector can access every part of the home, such as the roof and any crawl spaces.
- Attend the inspection and pay close attention.
- Don’t be afraid to ask your inspector to take a look — or a closer look — at something. And ask questions. No inspector will answer the question, “Should I buy this house?” so you’ll have to make this decision after reviewing the reports and seeing what the seller is willing to fix.