When you are a first time home buyer, finding the right property and ensuring the finances can be a hard task. There are many steps and many requirements that you must take into the consideration. However, becoming a first time home buyer isn’t as difficult as it may seem.
If you are a first time home buyer, you might have some special advantages compared to other, more experienced buyers. Whether you are just starting to save your finances or you already have a specific house in mind, here are several hips to help you get the keys to your new house faster and without additional stress.
Start Saving for a Down Payment
Average down payment is 20%, but there are ways for you to get a loan with a smaller down payment. There are even some first time home buyer programs that can allow you to put as little as 3% down! Keep in mind that the smaller the down payment, bigger the costs. And even the smallest of down payment can still be a lot. This is why it’s important to save some money in advance. Even if the down payment ends up being less than you might anticipate, there are always some expenses that you’ll need cash for.
Find the Right Mortgage Option for You
There are a lot of mortgage options and a lot of ways for you to get your loan, even when your Credit Score isn’t exactly the best. Some loans that work the best for first time home buyers are:
Conventional Mortgages – They are usually approved by the government-sponsored entities such as Freddie Mac and Fannie Mae. Not a lot of people know that they can require as little as 3% down.
FHA Loans – These loans are insured by the Federal Housing Administration. They have several advantages, and some offer down payments of just 3.5% for first time home buyers.
VA Loans – These loans are guaranteed by the Department of Veterans Affairs. If you’ve spent more than 6 years in the service, or if you’re a spouse of a soldier who died on the mission, you might be eligible for these loans. Some of them even require no down payment at all!
Owner Financing – If you don’t have good Credit score but still want to purchase a house, you can always try owner financing. This option isn’t without risk, but it is a great solution for people who’ve faced financial struggles but still deserve to become homeowners.
Research Local Assistance Programs
Most states offer assistance programs for first time home buyers. These programs usually come with perks such as low down payment, assistance with the closing cost, tax credit, even some discounted interest rates. It’s important to research the possibilities offered to you by your home state. Many state housing authorities combine low down payment loans with favorable interest rates. This can boost your chances of becoming a homeowner. Some grants are even directed towards people in certain professions, or people who want to live in certain – usually rural – areas.
Check Your Credit
Most mortgage loans demand good credit report. This is why keeping a good credit report is one of the key factors in determining whether or not you will be approved. It can even help you improve the loan terms! Be sure to check your credit before you begin the search for your dream home. If you have any errors that are dragging your score down, try disputing it. Do whatever you can to improve your credit report. And most importantly, when you are a first time home buyer, don’t open any new credit account! This includes a credit card or a car loan.
Get a Preapproval Letter
You don’t have to wait to find your perfect home to find the right mortgage option for you. There are ways to get pre-qualified for a mortgage of an estimated amount. In other words, most lenders can give you the average amount they are willing to lend to you, based on your credit score, income and existing debts. This is a smart step, as it can give you the upper hand if there is a competition. Having a preapproval letter for your loan can make you look like the safest option for the home seller, as they are certain that you will be able to finance their property.
Find the Right Property
Once you have decided everything about your finances and mortgage, it’s time to search for the right property. Finding the right house sounds like an easy step to almost any first time home buyer, especially after what we’ve written about mortgages. However, there are a lot of things to consider.
First off, you have to decide whether you will work with a real estate agent or find a real estate investor that you can purchase the property from. You may even try to look for everything yourself.
Also, you have to know what type of house you’d like. Having a single-family home is a dream for most future homeowners, especially if you want a big yard or a garage. However, it can be hard to maintain and houses are usually more expensive than condos and flats. On the other hand, if you’d like a condo, you’d probably have to pay a homeowners association fee – but you will spend less on maintenance.
The neighborhood is also an important aspect of becoming the first time home buyer. Everyone wants safe surroundings, but there’s more to it. For example, if you have kids, you’d want to have schools nearby. Even if you are planning on living solo, if you hear that the school is planned to open near the desired property, count that in, as schools in the area will increase the future value of home. Be sure to find other amenities as well, such as hospitals, grocery stores and parks. And if you are worried about the noise, try driving through the neighborhood at different times.
Stick to Your Budget
No matter how tempting that super fancy house looks, remember – you’ve set your limits and you shouldn’t cross them, no matter if you can afford the down payment. But what if the competition is high and someone offers more on the property you’ve set your eyes upon? Our tip for any first time home buyer who fears facing this problem is to look for houses that cost less than the amount you were approved for, or that you’re prepared to spend. If you live in a competitive market, it’s likely you’ll have to bid for the property you desire. When you shop bellow the amount you can spend, you have room for bidding. In other way, you might end up with a mortgage you won’t be able to pay.
Think About Additional Expenses
Down payment isn’t the only expense you will have. You also have to count in the closing cost and for any expenses that you might have after you move in. Closing costs usually run between 2% and 5% of your loan amount. You might also want to hire home inspection to ensure that everything is all right with the property. If you work with a real estate agent, you’ll also have to think about commission fees.
Once you buy your house, you’ll still have more expenses such as maintenance and furnishing. Something will probably have to be repaired to be fitting for your standard. You might also want to repaint everything or to change the look of the front yard. All these things cost money and they are not covered by your loan.