Are you thinking about buying your first home? That’s exciting! It’s also a little scary – first-time home buyers face a big financial commitment and a whole lot of new information. Don’t worry about the information, though. We have some insider secrets to help you sort out what you need to know and do.
Here are 5 tips to help you get ready to buy a home.
1. Start Saving Early
Getting a mortgage requires you to put skin in the game by making a down payment on your home. That’s typically from 3% of the purchase price to 10-20%, depending on the loan.
Start saving by slashing expenses and creating a budget to help you reach your goal. You also could ask family members if they can help out. If money is an issue, check out loans with small down payments such as FHA and VA loans Additionally, some government programs help first-time buyers with down payments
2. Try Not to Finance Anything New Before Buying a Home
How much you owe will affect how much you can borrow. Financing a large new purchase before you get a mortgage (a new car, for example) reduces your loanable amount. You also may negatively impact your credit score with a large purchase, since you’re increasing utilization and lowering your available credit. That could have a bearing on home loan terms, such as interest rate. It’s best to stay away from other major purchases when you’re about to make the biggest purchase of your life.
3. Decide How Much Home You Can Afford
What price home are you in the market for? In addition to estimating monthly mortgage payments that you think are doable on your income, have you factored in other expenses such as insurance, property taxes, utility payments, and maintenance costs? What you can afford may be less than the online mortgage calculators are showing.
When you talk with lenders, they’ll help you understand the maximum mortgage you qualify for. Then you’ll need to make a decision about what price house and which loan amount up tothat maximum feels most affordable for your lifestyle.
4. Explore Mortgage Options
A good start for exploring different mortgages is to compare conventional loans to FHA loans. An FHA loan for first-time home buyers, for example, allows lower qualifying credit scores and a lower down payment than conventional loans do. A conventional loan, however, can have fewer restrictions. If you are an active-duty service member or veteran, another option is VA loans These have generous benefits and terms.
There are many mortgage products available. just asks the right questions and finds loans that best fit your situation. Then you’ll have everything you need to make a decision.
5. Get Familiar with First-Time Home Buyer Programs
Like the FHA loan mentioned above, there are first-time home buyer programs that can save you money. Here are a few to ask your lender about:
USDA loan: The U.S. Department of Agriculture guarantees mortgages to home buyers in some rural areas.
Fannie Mae and Freddie Mac: These real estate entities fund the HomeReady® and Home Possible®mortgage programs, respectively.
Fannie Mae’s Homepath and Freddie Mac’s Homesteps have program for buying foreclosed homes that favor first-time homebuyers.