Buying a house is a major life decision that will impact you for years to come. It pays to make sure that you are making the right choice – and one of the best ways to do this is by educating yourself about what it takes to become a first-time home buyer.
This blog post discusses some of the things you need to know before taking the plunge into home ownership.
What are your thoughts?
– How will owning a house affect my finances and credit rating?
– What are the key things I need to know about a mortgage?
– What should I look for in a home inspector, and how do they work with me?
These are just one of the many things first-time home buyers ask about and that we will be answering in this blog post.
The key is to educate yourself about what it takes to become a first-time home buyer, and these are some of the things you need to know before taking the plunge into home-ownership.
What First-Time Buyers Need to Know
The real estate housing market can be a little challenging to navigate for a first-time home buyer. They’re learning as they go. A house is a large cost investment, which can be daunting to someone who doesn’t know anything about the process.
For buyers who don’t have any clue about what to do before buying a house, take in these few tips as advice from a friendly real estate agent.
Start by Preparing for a Mortgage Loan.
It may take some time for you to achieve your dream house. Your options may be greater than what you need. Inspect your bank account to see if you can pay your mortgage at a realistic rate based on your income, assets, and debt. Rather than rushing off to find your dream house, determine what you can afford first.
Ensure that your credit score is good as well. When you have a poor credit score, your interest rate on a mortgage will be higher, which could be troublesome for you in the long run. A homeowner’s credit score can have a dramatic effect on the price of their house.
Providing that your credit rating is good, ideally above 720, and extra credit is given to those over 760, you should begin speaking with lenders. It is possible for you to start the mortgage process by getting “pre-qualified.”
The following estimate is based on your income and debt, as well as your financial assets. It’s recommended that home buyers do some shopping around for a mortgage rather than start immediately talking to your local bank. Lenders charge different rates and fees.
Adding just a few percentage points to the Annual Percentage Rate (APR), or interest rate over the life of the loan, can result in thousands of extra dollars.
Your credit score plays a major role in how much interest you’ll pay on a mortgage. For a better credit score to purchase a house, follow these steps:
Verify your credit reports for any incorrect information that can lead to a negative credit rating.
Be sure to pay all bills on time and maintain a low credit card balance.
Keep the credit cards you currently have open. A closed card may lead to a lower score since you’ll be using more credit available.
Monitor your credit score.
Qualifications vs. Affordability
A mortgage broker will be able to answer the question, “How much can we borrow?” There’s a good chance you can get up to 43% debt-to-income.
If you add up all your debt, plus your mortgage, you can spend up to 43% of your gross income on debt. Having a mortgage that costs might make your house poor after spending other money on food and dining out with family.
Housing costs should generally not exceed 30 percent of gross income. It is best to keep it low. A large mortgage increases your budgeting pressures. The situation is even worse when you add other debts (car loans, student loans, credit cards). Make sure to avoid becoming house poor for the next thirty years, so choose mortgage loans wisely.
Start by figuring out what mortgage payment you can comfortably afford. You will also have to consider the cost of paying your monthly debts and other expenses in making this calculation.
Decide How Much to Put Down for the Down Payment
Down payments traditionally ranged from 20 percent or more. A house can be purchased with virtually no money down for first-time buyers. It’s not always wise to put down a large down payment on a home. On the other hand, if you have no down payment, a home may not be right for you.
The reason why? It’s only a matter of time before expenses like mortgage, property tax, and insurance take effect on you financially. A home can quickly become a money pit due to repairs and maintenance expenses.
A 20% down payment would be ideal. It’s up to you and your lender to decide how much you will put down. A down payment of 20 percent or at least may spare you from having to pay principal mortgage insurance (PMI).
Basically, you are paying insurance to protect the bank, which is an annoying waste of money. Taking this insurance into account will also increase the portion of your debt compared to your income.
A first mortgage combined with either a mortgage with a home equity line or a second mortgage may replace the 20% down payment.
Saving Up for the Down Payment
Once you know how much you will have to spend on a home that meets your needs, you should start saving for a down payment. You will need a bigger down payment if the home is more expensive.
In order to qualify for a mortgage and purchase the home, you may need to save up for a much larger down payment. Suppose you qualify for a $900,000 mortgage, but you desire a $1.2 million home. A down payment of at least $300,000 would likely be needed in this hypothetical situation.
Additionally, your lenders may require you to pay off or reduce other debt. When you are looking to buy a house, don’t make any major purchases with your credit card. If your credit card charges meant you missed out on your dream home, you’d be devastated.
Upon receiving money from family members, you will need to age it before putting it towards your down payment. You may need to wait for the money to appear on your bank statements for the lender if the money has been in your account for a period of time.
The process may take longer with other lenders. You should know your lender’s requirements and get the money from your parents as soon as possible when house-hunting.
Down payment won’t be the only cost you’ll be paying in the house-hunting process. You’ll come across expenses like closing costs, insurances, or other fees that you’ll be required to pay to close on your home.
In the end, a down payment is just one of many costs you’ll be paying for your home. You will need to take all these factors into consideration before making a decision about which direction to go in.
Are 30-year Mortgages a Good Idea?
First-time buyers will most likely choose to go with 30-year mortgages. Mortgages with shorter terms are usually prohibitively expensive. Conversely, if your mortgage term is shorter, you may save on interest and be able to pay your loan off sooner.
Additionally, being flexible and having options are important. When you plan to pay off your loan within 15 years, look for a 30-year mortgage, but repay it the same way you would a 15-year mortgage. Then you can navigate financial crises that might come your way.
Home ownership is a significant investment. Find the right house by working with a Shield My Deal real estate agent. Shield My Deal will make your home buying experience worthwhile.
How Much Do First-Time Home Buyers Usually Get Approved for?
First-time home buyers are typically required to put down 3 percent of the purchase price on a conventional loan, while FHA loans may require 3.5 percent. Those zero-down-payment loans are only available to first-time home buyers who meet special requirements.
What Questions Should a First-Time Home Buyer Ask?
When first-time home buyers make an offer or attend an open house, they may feel overwhelmed. To make the right decision regarding your first-time home purchase, educate yourself about some of the important things you must know before signing your name to the dotted line.
Before you begin your search, here are some questions you may want to ask yourself:
What is the maximum amount I can afford for a mortgage?
What are the requirements for getting a loan?
What is a better option for me – an adjustable-rate mortgage or a fixed-rate mortgage?
What is a PMI?
What is the best loan term: 15 years or 30 years?
Do I have to put down a certain amount?
How do mortgage points work?
What are the closing costs?
How does pre-qualification work?
Is it my intention to stay a long time in the house?
What are the costs associated with moving into a new home?
What is the cost of property taxes?
First-time home buyers should educate themselves first on certain terms so they won’t get lost in the process of buying their first home.
What Benefits Do First-time Home Buyers Get?
First-time home buyers are often qualified for certain things that only apply to them.
Mortgages Targeted at First-Time Home buyers
First-time buyers can now choose from a wide range of loans. First-time buyers should notify their lenders that they are first-time buyers so they can try to find special programs available to them.
For first-time home buyers, the US government offers a tax credit. There is no doubt that this is one of the most important and most well-known financial incentives. It was, however, only during the years 2008-2010 that a “First Time Home buyers Tax Credit” was actually available. The interest you pay on your mortgage, for example, may qualify you for other types of credit. Even if you’re not sure that you qualify, it’s worth talking to an accountant about it.
Down Payment or Closing Cost Grants
This information might be useful if you’re having trouble coming up with a down payment or closing costs. First-time home buyers have a wider range of options than other buyers. You might be eligible for grant assistance or other financial assistance if you consult your mortgage lender.
Freedom From Financial Worry
Owning a house is scary, but you’ll have a lot of financial freedom when you own a house and build equity. As a homeowner, your ability to refinance may allow you to repair or renovate your house at times of emergency. There aren’t many things better than that!
Contact Shield My Deal if You Are Ready to Buy Your Own Home
With us, you can expect excellence throughout the process. We’ll guide you on what to do and what to avoid.
The process of finding a home can be overwhelming, but the good news is that it doesn’t take long to find your perfect place! Let Shield My Deal help you start looking for your dream home today!