A 10 Step Guide to Buying Your First Home
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Here are some initial costs to consider:
DOWN PAYMENT: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first time buyers with good credit allow as little as 3% down.
CLOSING COSTS: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 5% of the loan amount.
MOVE IN EXPENSES: You'll want some cash after the home purchase. Set some money aside for immediate home repairs, upgrades, and furnishings.
2. Check and Build Your Credit Score
Your credit score will determine whether or not you qualify for a mortgage, and affects the interest rate that lenders will offer you.
A FEW STEPS YOU CAN TAKE TO STRENGTHEN YOUR CREDIT:
Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that could hurt your score.
Pay all your bills on time, and keep credit card balances as low as possible.
Keep current credit cards open. Closing a card will increase the portion of available credit THAT you use, which can lower your score.
3. Decide How Much You Can Afford
Before starting to shop, figure out how much you can safely spend on a home. Settle on a price range based on your income, debt, down payment, credit score, and where you plan to live. A lender will tell you how much money you qualify for, but you want to ensure you won’t overextend yourself.
Typically, experts recommend spending no more than 30% of your gross monthly income on housing costs. These costs include:
PRINCIPAL: This is the money you borrowed to purchase your home.
INTEREST: This is the fee the lender charges you to borrow the funds.
TAXES: You’re required to pay property taxes to the government based on the value and location of your home.
INSURANCE: Homeowners insurance protects your home against any damages.
ASSOCIATION DUES: These are fees you must pay if your home belongs to a homeowners association.
4. Call Your Realtor
Your realtor is an expert guide to home buying, and can provide you with powerful insider information, emotional support, and knowledge on each property and neighborhood. A good real estate agent will scour the market for homes that meet your needs and guide you through the negotiation and closing process. We’ve made this step easy, just click the button below.
5. Explore Mortgage Options
A lender can guide you through a variety of mortgages that are available with varying down payment and eligibility requirements.
CONVENTIONAL LOAN: Not guaranteed by the government. Some conventional loans targeted at first-time buyers require as little as 3% down.
JUMBO LOAN: A jumbo loan is a mortgage used to finance properties that are too expensive for a conventional conforming loan..
FHA LOANS: Insured by the Federal Housing Administration and allow down payments as low as 3.5%.
VA LOANS: Guaranteed by the Department of Veterans Affairs. They are for current and veteran military service members and usually require no down payment.
6. Compare Interest Rates and Fees
It's recommended to request loan estimates for the same type of mortgage from multiple lenders to compare the costs, including interest rates and possible fees.
If you do not have a lender in mind, ask your realtor or friends for a referral.
7. Get a Pre-Approval Letter
A mortgage pre-approval is a lender's offer to loan you a certain amount under specific terms. Having a pre-approval letter shows home sellers and real estate agents that you're a serious buyer, and can give you an edge over home buyers who haven’t taken this step yet.
Apply for pre-approval as soon as you're ready to start home shopping. A lender will pull your credit and review documents to verify your income, assets, and debt. Applying for pre-approval from more than one lender to shop rates shouldn't hurt your credit score as long as you apply for them within a limited time frame, such as 30 days.
8. Pick a House Type and Neighborhood
Weigh the pros and cons of different types of homes, given your lifestyle and budget. A condominium or townhouse may be more affordable than a single-family home, but shared walls with neighbors will mean less privacy.
Don't forget to budget for homeowners association fees when shopping for condos and townhomes, or houses in planned or gated communities.
Check out potential neighborhoods thoroughly. Choose one with amenities that are important to you, and test out the commute to work during rush hour.
9. Schedule Showings and Tour Homes
Review the listings that are available on the market, and speak with your realtor to set up showings to see the ones you’re most interested in. Take advantage of open houses and virtual tours when available. Look at the overall condition of the home inside and out. Take notice of the neighborhood as well, and try driving by at different times in the day.
10. Start Writing Offers
Once you’ve found a home you love, consult with your Realtor on the best price and offer to put together.You’ll want to submit it as soon as possible. Time is always your best friend, and you don’t want to miss out on a home just from taking too long to prepare an offer. Remember to have patience and trust in the process! Don’t be discouraged if you aren’t accepted on your first offer.
