Buying a First Time homebuyer can be an exciting journey, but you want to feel comfortable in the driver’s seat. As you navigate through all of the paperwork, meetings, and negotiations, it can feel overwhelming at times. Thankfully, with the right team by your side, this process is much easier. Before you start, it helps to be as prepared as possible. If you’re ready to call a place your own, we’re here to help. Today, we’re sharing an essential guide full of all of our best First Time Homebuyer Tips!
1. Know Your Credit Score
No, your credit score isn’t the only thing a lender will evaluate when deciding whether to approve you for a home loan. However, it is one of the most important factors they’ll weigh. And it is one of the most overlooked things for First Time Homebuyer Tips.
Your credit score is a measure of your creditworthiness. In other words, it helps potential lenders gauge whether you can be trusted or not to pay back your mortgage in a timely and responsible manner.
Credit scores range between 300 and 850. The higher your score is, the better.
If yours isn’t where you’d like it to be, that’s OK. If your home purchase isn’t time-sensitive, you have time to build it back up. You can check out this guide to learn how to do so as quickly as possible.
If you do need to get into your home sooner rather than later, there are workarounds for applicants with lower credit. For instance, you can ask someone with a higher credit score to co-sign on your loan. Or, you can look for loans from lenders who don’t prioritize this number when reviewing applications.
Related First Time Homebuyer Tips Article: What is a Good Credit Score to Buy a House
2. Make Sure You’re Ready
Most mortgages last between 15 and 30 years. Of course, you’re free to sell your home at any time during that period. Still, this is one of the biggest and most important investments you’ll make in your life.
You want to make sure you can commit to home ownership before you take the leap. Ask the hard questions now to avoid a major headache down the road.
Are you financially stable enough to pay a monthly mortgage? Do you have an emergency savings account built up that could sustain you if you lose your regular income? Do you plan to live here and commit to the area for at least a few years?
If you’re shaking your head no, then it might be time to pump the brakes. Use these next few months or years to build up your savings and make sure you’re really ready to take that next step.
3. Get Your Budget Right
If you’ve been renting, then you may already know how to allocate your monthly income to allow for major living expenses. Still, a mortgage is a more significant investment. When considering the type of house you’d like, don’t just think about the price of the home. Also consider other monthly recurring expenses, including home insurance, property taxes, and utilities.
If you’re moving into a neighborhood, you may be required to pay Homeowners Association (HOA) fees. It’s also smart to set aside money each month to cover unexpected repairs and maintenance.
Add all of your expenses together, estimating to spend around 1% to 3% of your home’s total price on annual upkeep. Then, compare this number to your yearly and monthly income. If the difference is a negative number, then it’s time to reevaluate the type and size of home you can afford.
4. Get Pre-Approved
If you’re a first time buyer, it can be tempting to jump right into the process. We get it!
This is a monumental time in your life, and you want to get started as soon as possible. Plus, if it’s a seller’s market in your area and homes are getting snatched up every day, you might feel rushed to join the crowd.
Still, it’s important to start with a strong foundation. By taking the time to get pre-approved by a mortgage lender, you’ll know your realistic price range. This means you don’t have to waste your time and spin your wheels on homes that are way above or below your budget.
Pre-qualification vs. Pre-approval
With so many terms to remember and jargon to learn, it’s easy to get pre-approval confused with pre-qualification. These two might sound similar, but they’re different.
A prequalification is an estimate of the home loan that you may be able to receive. Lenders can provide it after informally evaluating your financial status, including your income level.
On the other hand, a preapproval is more concrete. This is a document that tells you exactly how much loan money you can receive. Rather than just your income, lenders will evaluate everything that comprises your financial health, from your W2s and bank statements to your credit score.
This process can take a little time, but it’s worth it. In the long run, it can actually save you time by helping you narrow in on only the properties that match your requirements.
5. List Your Needs and Wants
Once you have your financials behind you, it’s time to start thinking about what you want this property to be like. One of the most common First Time Homebuyer tips is to create two lists.
On the first list, write down all of the features that you must have in your home. These are things that are dealbreakers if they aren’t present. For instance, you might need to be in a particular school district for your children, or within a specific commute time for work.
Structurally, you might need a home that’s handicap-accessible or has a fenced-in backyard for your pets. Think about how you live your everyday life, and what you use on a daily basis. You might find that there are certain features you absolutely require in a house but have never thought about before!
On the second list, write down the features you want in your home. These are things that aren’t necessarily requirements, but they would be nice to have. For example, you might prefer a home with a pool, a first-floor bedroom, or walk-in closets.
Once you start reviewing properties, you can assess how well each one meets your “needs” list and your “wants” list. Keep in mind that even if it checks all of your “need” boxes, there’s still a chance that it isn’t the right fit. Before signing on the dotted line, scope the property out a little further.
Spend time in the community during the day, as well as at night. Picture yourself living there. Along the way, remember that there are some house features (such as a pool) that you can add later if time and money allow.
6. Keep Your Credit Steady
While you’re eyeing the real estate market, resist the urge to apply for a new credit card. This isn’t the time to add an additional line of credit, and here’s why. This can be one of the most important First Time Homebuyer Tips!
As mentioned, a lender will pull your credit report when evaluating your mortgage loan application. Then, they will perform the same step again when it’s time to close on the property.
If they discover that you’ve taken out another line of credit or any type of additional loan during the interim, then your approval could be at risk. If your credit balance increases or you start to miss payments on any loan, this can also ding your credit score.
Wait until after the mortgage review and approval process is complete before you make any changes to your credit.
7. Start Saving for a Down Payment
Even if you’re still a long way out from buying a house, it’s a good idea to start saving now if you know you want to put down roots in the future.
Doing so will enable you to put down a larger down payment when you are ready to buy. Most experts recommend putting at least 20% down on your home to avoid paying private mortgage insurance, or PMI. While you can qualify for a conventional loan with as little as 3% down, though you may incur additional fees and terms if you decide to go that route.
If you qualify as a first-time home buyer under the Federal Housing Administration’s (FHA) qualifications, then you may be eligible to receive certain financial incentives to make this process easier. This includes down payment assistance programs, as well as specified loans and grants.
Does the idea of saving that much money feel daunting? Here are a few more First Time Homebuyer Tips to help you save up for a down payment without cutting too much out of your daily life.
Related Article: How Much Mortgage Can I Afford?
8. Learn Your Loan Options
While most home buyers opt for a conventional home loan, this is far from your only option. The specific type of loan you choose will determine your terms, timeline, and payment amount.
In addition to conventional loans, other common types of home loans include:
- FHA loans
- USDA loans
- VA loans
Each type of loan has its own terms and qualifications. For instance, you cannot receive a VA loan if you don’t meet the agency’s military service requirements, and your new home must be in a designated rural or suburban area to qualify for a USDA loan.
Once you know which type of loan you want to pursue, you can put steps in place to get there. One option is to set up an automatic draft from your checking account into a designated savings account. This way, each time you get paid, a portion of those earnings will go toward paying for your future home.
Related First Time Homebuyer Tips Article: What Makes Mortgage Rates Change
9. Don’t Lead With Emotion
Here’s where things can get a little tricky. You’ve gotten preapproved for a certain loan amount. You’ve calculated your budget and you know what you can realistically afford.
Then, you tour a dream property “just to see” it…and you fall in love.
You start dreaming of your life there, and everything that would include. You get stars in your eyes and suddenly, dollar signs seem to matter less and less.
But here’s the thing: They matter more than anything.
Sure, you may be able to apply a smaller down payment and get into the house of your dreams. Yet, that monthly mortgage will be waiting for you as soon as you move in. If you can’t afford it, it’s unlikely that you’ll be able to stay there for too long, no matter how incredible it might be.
This isn’t to say you shouldn’t chase your dreams. Yet, don’t limit your dreams to one property. The right one is out there, and it will fit your budget perfectly. Take your time, be open to new ideas, and keep a long-term perspective as you start to browse.
10. Partner With a Real Estate Team
Finally, we’re closing our First Time Homebuyer Tips with a tip that’s especially important to us: Work with a great real estate team. That can include your Builder, Realtor, Loan Officer, Inspectors etc.
This is a tricky, convoluted, and complicated process and it can be overwhelming for anyone. Add to that stress the idea of selling your current home (if you have one) and moving out of it, and it’s a lot to handle.
When you team up with qualified and experienced local real estate professionals, all of that burden is lifted from your shoulders. They’ll help you find and tour properties that fit your budget, meet your needs and match your preferences. Then, they’ll handle all the legalities as you negotiate an offer and close the sale.
Put These First Time Home Buyer Tips Into Practice
As a new home buyer, you have the world at your fingertips. Despite how the market might ebb and flow, you get to decide where you live and what that looks like.
This is one of the biggest decisions you’ll ever make, so don’t go into it lightly. Read through these first time home buyer tips and keep the list handy as you start your search.
As you do, we’re here to help the process go as smoothly as possible. We know Raleigh real estate, and we can’t wait to bring you home. Contact us today to ask questions or schedule a visit.