Tips for First-Time Homebuyers

There are many things first-time homebuyers must do to find and buy their dream home. So, here are some simple steps that can help you through the process.

Start Working with a Real Estate Agent

A real estate agent will help you through the entire process of searching for a home, negotiating the price, getting a mortgage, and closing on your new home.

So, starting to work with an experienced real estate agent early in the process of your homebuying journey will help you avoid mistakes and get the best home for the best price.

Get Pre-Approved for a Mortgage and Review Your Mortgage Options

Lenders and mortgage brokers are great resources for education, besides pre-approving you for a mortgage.

Many real estate agents require you to be pre-approved for a mortgage before going to see homes for sale, and sellers take pre-approved buyers more seriously.

Some of the more common home loan options include:

  • Fixed-Rate Mortgage. This is a standard mortgage with a fixed-term interest rate, which allows first-time homebuyers to be fully aware of their monthly payment, because it will not change over the life of the loan.
  • VA Home Loan. These home loans are for qualifying veterans and can include a zero down payment.
  • FHA Home Loan. These loans are insured by the Federal Housing Administration (FHA), and offer down payments as low as 3.5%.
  • Conventional Mortgage. These loans can require as little as a 3% down payment but are not directly backed by a government agency.
  • Adjustable-Rate Mortgage (ARM). An ARM typically offers a low initial interest rate (teaser rate), after which the rate fluctuates throughout the life of the loan.
  • Local Initiative Programs. These programs are offered by local agencies to help homebuyers in numerous ways, such as with their down payment, closing costs, and interest rate. Often times, the programs are geared to help first-time homebuyers, so make sure you discuss these with your lender.

Budget for Future Expenses and Save

Part of buying a home is getting a mortgage. And part of getting a mortgage is financially qualifying for a home loan.

To help, make a budget of your monthly expenses. Remember to include things like utilities, transportation, entertainment, clothing, debt repayment, insurance, and an estimated monthly mortgage payment.

It further helps to increase your disposable income and savings when working to qualify for a mortgage, so budget to spend less that you are making and to add to your savings while looking for a home.

Also, include in your budget a monthly amount to pay the maintenance costs of your new home, and start adding that amount to your savings.

Raise Your Credit Score

Review the credit score of everyone who will be on the mortgage and create a plan to raise the credit scores where possible. Also, check for errors and correct them as soon as possible.

If you are already working with a lender or mortgage broker, they may help you create a plan to raise your credit score which could lower your monthly payment.

Save for the Down Payment

Many years ago, a 20% down payment was the standard. Today, lenders offer 10%, 5%, and lower down payments. There are even zero down payment options for veterans and others.

Working early with a lender or mortgage broker will let you know how much you need to save for a down payment, and how much you can afford to spend on a home.

Save For Closing Costs

Closing costs are the final costs payable when closing on the purchase of your home. When you are pre-qualified for a mortgage, your lender will educate you on how much cash you should have for closing costs.

There may be programs available to help with paying your closing costs, which your real estate agent and lender can tell you about.

Take Away

Remember that working with an experienced real estate agent early in the process of buying a home is extremely helpful.

Your real estate agent will educate you on the entire process and help you every step of the way.