7 Useful Tips for First Time Home Buyers
The prospect of buying your new home is very exciting indeed but the process of it can be so challenging. There are so many steps and requirements that you need to get a good understanding of, before jumping into the whole process.
Before diving into the nitty-gritty of what to do, what to expect, and what questions to ask, you are a first-time home buyer and some advantages come with that. Certain perks like tax breaks, access to state programs, and federally backed loans in a case where you do not have the basic minimum down payment.
It might interest you to know that even if this isn’t your first rodeo, according to the HUD (U.S Department of housing and urban development) you qualify as a first-time home buyer if you are:
- Someone who did not hold ownership in a principal residence for a space of three years that ends on the date of purchase.
- A single parent who only owned a home before getting separated from their spouse.
- A displaced homemaker who only owned a home with an estranged spouse.
- Someone who only owned a principal residence not rooted to a permanent foundation per applicable regulations.
- Someone who owned a property that fell short of state, local, or model building codes and cannot be brought into abidance for less than the cost of constructing a permanent structure.
Here are some useful tips to not only get you started but also settled in as a new homeowner:
Have Extensive Savings
You need to make sure you have enough money for expenses like
- Down payment: This will depend on the type of mortgage you get. With a good credit score, you might get as low as a 3% down payment. But, even with this, you need to save well because 3% of the purchase price (usually 5-6 figures) is a lot of money. The more money you save up for down payment, the less you’ll have to borrow and the more equity you’ll begin with.
- Closing costs: These are fees, usually 2% to 5% of the loan amount, you pay to finalize your mortgage.
- Move-in costs: After buying the house comes expenses in the form of home repairs, furnishings, and upgrades.
Ensure You Have Good Credit
Whether you get a mortgage at all and the interest rate it will attract depends on your credit score. Here are a few tips to help strengthen your credit score:
- Get reports on your credit so you’ll know what you are working with and how to get to where you want. Also to check and dispute any errors on the report. Experian, TransUnion, and Equifax are credit bureaus you could get free reports from.
- Pay bills as at when due, and keep low credit card balances.
- A DTI (debt to income ratio) of 43%.
Choosing a Low or No Down Payment Mortgage Option
Good for you if you’re looking to get mortgage loans nowadays because the mortgage rate is at a historical low. The average 30-year mortgage rate for 2020 was 3.11%.
There is an array of mortgage options available with variations in eligibility requirements. Some require a sizable down payment. There are also mortgage options with no down payment for qualified buyers:
Mortgages that Require a Down Payment
- Conventional mortgages are not backed by the government. First-time buyers could get as little as 3% down.
- FHA loans are loans from the Federal Housing Administration and they give out loans for down payments as low as 3.5%
- Native American Homebuyers: can take advantage of a section 184 loan. With this, they get a loan upfront guarantee fee of 1.5%, down payment of 2.25% on loans above 50 000 dollars.
Mortgages that Do Not Require a Down Payment
- USDA loans are from the U.S. Department of Agriculture. They are targeted at rural home buyers and are not required to pay down payments.
- VA loans are from the Department of Agriculture. They are targeted at veterans and current military serving and are not required to pay down payments.
Get a Pre-approval letter
The pre-approval can only come after the lender must have verified all your financial information ( credit score, employment details, DTI, etc.). The lender pre-approving a certain amount for you is important because it shows real estate agents and homeowners that you’re a serious buyer.
It is important to note that a lender can rescind a pre-approval if you happen to damage your credit score after it’s been issued.
Choosing a Good Real Estate Agent
In a 2018 survey, 86% of home buyers employed the services of an agent while searching for a home in the U.S. Getting a good real estate agent could really make a difference in your house-buying experience. A good agent will search for homes that meet your needs, help you decide on an offer, and follow through with the negotiations and closings.
Enquire from other new homeowners about their own experiences with agents, interview a few and settle for the one most suitable for you.
Have the Home Inspected
Home sellers are only humans and might want to cover up a few flaws in the home just to drive up the price. Therefore, it is essential to get a professional home inspector to give an overall assessment of the structure and mechanical systems of your potential new home.
This way you’re sure you won’t get stuck with a money pit or go through the trouble of doing a lot of unexpected repairs. On the other hand, if issues are found you could ask the seller for a discount or simply rescind your offer and get your deposit back.
Get Proper Home Insurance
You’ll be required to get homeowner’s insurance before closing on your loan. Just like you did with the mortgage and real estate agent, take your time to find an agency that suits your needs. Home insurance should cover repairs and replacement of the damaged home structure and property. You should also consider the new area in terms of what your insurance should cover.