As a first time home buyer, you probably have many questions. What kind of credit score do I need to buy a house? Do I need a real estate agent? How much does it really cost to buy a house? Have no fear, these questions and more have been answered in the article below. We’re going to go over the best tips for a first time home buyer and show you where you need to go to get started.
1. Clean Up Your Credit Score Before Becoming a First Time Home Buyer
Creditworthiness is a big deal when buying a home. Mortgage lenders review your credit report to determine the loans you qualify for. A good credit rating gets you competitive interest rates.
If your credit has taken some hits, don’t worry. Begin by reviewing your credit report and checking whether you can remove items that are lowering your rating. If needed, take time as a first time home buyer to establish a better credit history. A good interest rate based on your credit score saves thousands of dollars over the life of your home loan.
2. Start Saving Right Away
Most people know that saving up for your first home is a necessary goal. However, there are more expenses to set aside funds for than you might initially think. Here are costs you will encounter:
- Down payment expenses: A down payment depends on the type of loan you qualify for and what percentage the lender requires. You may need considerable savings if you choose to make a large payment to reduce the length of your loan.
- Closing costs: Closing fees run between 2% and 5% to finalize your loan. These are fees incurred during a real estate transaction that cover expenses outside of property costs, such as loan origination, appraisal, surveying, title insurance, deed recording and home inspection. In some instances, you can negotiate that moving fees be covered by the previous owner.
- Moving fees: Moving costs involve transportation of your personal property to your new residence. If you’re moving long-distance, it can get expensive. It’s good to plan for additional expenditures associated with a move.
- House upgrades: A first time home buyer quickly realizes there are usually upgrades needed to make a home more comfortable. Upgrades could be anything from repairs to painting or replacement of appliances. Keep cash on hand to pay for necessary improvements.
- Furnishing needs: A new home typically requires some new furnishings to fill the space. Make a fund for furniture and decorations so your space feels comfortably livable from the start.
When saving for a home seems hard, keep in mind it is the nest egg for a wonderful new chapter in your life.
3. Research Mortgage Options and First Time Home Buyer Assistance Programs
There a plenty of great options available for home financing. It’s essential to get a loan with affordable terms for the length of your loan. These are four popular loan types:
- Conventional loan: This is a standard loan not guaranteed by the government. Depending on the lender, a first time home buyer may be able to get a mortgage with a low down payment.
- U.S. Department of Agriculture loan: This type of loan is for rural home buyers. It is guaranteed by the USDA and typically doesn’t require a down payment.
- Federal Housing Administration loan: The FHA insures the loan and requires a minimal down payment.
- Department of Veterans Affairs loan: A VHA loan is for former or active military members. Most times, a VHA loan doesn’t require a down payment.
Do an online search for first time buyer assistance programs. Some states, counties and local municipalities provide incentives to people buying a first home, and these programs could provide help with down payment assistance, low-interest mortgage rates and closing costs. You may also qualify for tax credits.
4. Get Pre-Approved for a Loan
Getting a loan pre-approval as a first time home buyer is a top priority before beginning your home search. This information determines your maximum loan amount and the interest rate you qualify for. You can request a pre-approval from more than one lender to shop for the best rates.
In the pre-approval process, lenders do a deep dive into your financial background reviewing your debt-to-income ratio, credit history, employment history, income level and current savings. Providing this information to your real estate agent shows you are a qualified buyer who is intent on purchasing a home.
5. Hire a Qualified Real Estate Agent
Finding the right real estate agent is one of the most important decisions you will make as a first time home buyer. A qualified listing service is a great way to find top agents in your area who have expertise in local housing markets.
6. Stick to Your Budget
Keep affordability in mind when buying your first home. Even if you qualify for a large loan amount, don’t overreach your financial comfort zone. As a homeowner, you always need cash reserves for unexpected expenses. Establish your budget ahead of time and stick to the plan. Be open with your real estate agent about realistic price points, so the agent knows which listings to show you.
7. Have a Home Inspection Done
A first time home buyer should always get a home inspection done before buying property. However, you need to know that not all home inspections are the same. Most inspectors have a checklist to follow, yet some may only do what is necessary to meet compliance standards. This could leave you, as the new homeowner, on the hook for serious underlying problems. Here’s what you should do to protect your interests and your wallet:
- Request a comprehensive inspection
- Attend the inspection
- Review the report thoroughly
Some lenders require a comprehensive inspection report while others have minimum standards. Always err on the side of caution and learn as much as you can about a home’s condition before buying, so you can negotiate the price or look for another house.
Locate Expert Help Fast as a First Time Home Buyer
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