Buying a house is an exciting investment, but where do you start? For first-time homebuyers especially, the process can seem complicated and a bit scary. However, if you do your homework and prepare, you will have the keys to your new home in no time. Here are some helpful tips for every first-time home buyer!
Check & Manage Your Credit
Your lender is going to check a few factors, and your FICO credit score is one of the most important. However, what is your credit score? It’s a number ranging from 300 to 850 that sums up your credit history, which includes your payment history, outstanding balances, length of credit history, outstanding balances, length of credit history, types of credit used, and the number of credit inquiries. Your credit score shows your lender your credit worthiness and the risk of lending to you. It may also affect your interest rate and loan type. Basically, the higher your credit score, the better. If you want to check your credit score and keep track of it a good place to go is creditkarma.com, it’s completely free and it includes tips on how to improve your current score.
Determine What You Can Afford
You should look at your monthly budget and decide on a housing budget moving forward. What do you currently spend on rent and housing each month? Are you comfortable with this amount? Depending on your debt-to-income ratio, your lender will qualify you for certain dollar amount. They’ll give you a loan estimate that shows your estimated monthly payment. Really consider if you’ll be comfortable with this amount every month and don’t forget that number doesn’t include water, electric, cable, etc.
Remember, just because you qualify for a certain amount, doesn’t mean you have to max out your budget.
Start Saving Money
One of the biggest factors that keep people from buying a home is lack of a down payment. Conventional loans require a down payment of 20% to avoid PMI, but there are many loan options available that offer low and no down payment options for borrowers who qualify. FHA loans, for example, require a 3.5% down payment. A VA loan offers active and retired military members favorable loan terms with 0% down. Talk with your lender about your loan options so you know how much of a down payment you will need to makes. Whether you are planning to put 20% down or 3.5%, you should start saving now!
Don’t Forget About Closing Costs
While many loans offer low and no down payments options, buying a home may still involve some cash upfront – closing costs. Closing costs are generally 2% to 6% of your purchase price and include things like title and recording fees, prepaid, escrow, loan-related fees, mortgage insurance, and third-party fees. you and your agent can negotiate with the seller to cover some of your closing costs, but how much exactly is dependent on the type of loan you get.
