When you decide to buy your first home, the first thing you should realize is that this is an investment in your future that will take plenty of planning. Ideally, you should start developing a strategy for buying your first home several years before you begin browsing the housing market. As you begin creating your home buying plan, these tips can be used to make the experience that much more enjoyable and satisfying.
Start Saving For a Down Payment Early
Generally, you’ll need a down payment that’s equivalent to 20% of the total sale price of the house you intend to buy. You’ll also need an additional 4% of the sale price to cover the closing costs on the transaction. When you research first time home buying tips, you’ll have an opportunity to discover government programs that can let you buy a home with a down payment that’s as low as 3%. While that sounds like a great deal, you should keep two things in mind when considering a lower down payment. First, paying less upfront will mean that you’ll have to take out a bigger loan. Secondly, you usually trade off a lower down payment for higher interest. As a result of paying less upfront and paying more in interest, you may be stuck paying considerably more for your home in the long run.
Your Credit Score Matters
Another reason it’s important to plan your home purchase several years in advance is that it will give you time to raise your credit score and pay off your existing debt. Ideally, you should have little to no debt by the time you close on your first home. This will ensure you can make the monthly mortgage payments. It will also leave you with enough disposable income to cover any emergencies that pop up, such as a broken water heater or leaky roof. As you pay off your debts and make your normal monthly payments on time, you’ll also be improving your credit history. After a couple of years, this strategy can help you raise your credit score by several points. A higher credit score will help you get a mortgage with more favorable terms.
Shop Around For the Best Deals
When you’re ready to start looking for your first home, take the time to shop around for lenders. Some government programs that offer lower down payments, do offer lower interest rates as well. Before committing to this type of program, you should review the terms carefully to make sure you really will be saving. Some common programs to research include FHA loans, USDA loans, and VA loans for military veterans. If you’re having trouble borrowing from traditional commercial lenders, or if lenders are charging interest that’s too high for your budget, try borrowing through a government program.
Get Pre-Approved
The housing market is very competitive, and this is especially true when it comes to finding a great property at a reasonable price. This means you’ll likely end up competing with other buyers for your dream home. You can give yourself a competitive edge if you’re pre-approved for your mortgage when you begin house hunting. Being able to present a pre-approval letter will show the seller and their agent that your offer can be taken seriously. Once a seller accepts your offer, they won’t have to waste time waiting for you to find a lender, and this will help move the closing process along a little faster.
Pay For the Home Inspection
Almost every lender will require you to have a home inspection, but, even if you’re paying cash for your home, an inspection is still recommended. Additionally, you should accompany the inspector during their tour of the home to gain extra insight that may not be included in the report. While an inspection won’t point out every minor flaw in the house, it will reveal possible problems with the home’s structure and systems. The condition of the roof, foundation, plumbing, wiring, and HVAC system are a few of the areas that will be examined. The inspection will help you make a better informed decision as to whether you still want to buy the house.
Conclusion
As this guide suggests, the type of home you plan to buy isn’t quite as important as the financing options you choose to help you buy that home. The right mortgage can help you protect your home without putting you in a bad financial position. When you take the time to target the ideal borrowing terms, your home buying experience will be the happy event you dream it could be.
