First-time homebuyers account for 33% of all residential real estate purchases in the United States. When you’re ready to join this group looking for a home, finding ways to simplify this process should be one of your main concerns. Being properly prepared can help you avoid making some of the most common mistakes along the way.
Check Your Credit Before Applying for a Home Loan
You may already know that getting pre-approved for a mortgage loan is a great move when looking to buy a home. Having loan pre-approval allows you to know exactly how much you can afford and to move quickly when the right home is available.
But before you search for a mortgage loan, be sure to check your credit score. Lenders will consider multiple factors, including your credit score and debt-to-income ratio, before approving your loan. Checking your credit score will allow you to see where you stand and if any improvements need to be made before applying for a mortgage.
The average lender requires a credit score of at least 620. If your credit score is currently below this number, here are some steps you can take to boost it:
• Pay down your current credit card balances
• Use automatic bill pay
• Find and dispute errors on your credit report
• Avoid taking out new lines of credit
While improving your credit score can be a time-consuming and difficult process, it’s worth the effort you invest. The better your credit score is, the easier it will be to quality for a low-interest mortgage loan.
Anticipate the True Cost of Buying a Home
Some first-time home buyers think all the costs associated with buying a home will be covered by their mortgage. Instead of relying solely on a mortgage loan to fund your home purchase, you need to try to cover some expenses out of your own pocket. The more money you borrow to pay these costs, the more you will inevitably have to pay back.
By paying for some costs out of your own pocket, you can lower your monthly mortgage payment and avoid interest.
Save for a Down Payment
The amount of money you need to submit as a down payment will depend on the type of mortgage you apply for and the lender you use. There are some conventional mortgage loans that allow people with good credit to put down as little as 3 percent. Even if you do qualify for this smaller down payment, you will have to come up with the money. Rather than waiting until the last minute, you need to start saving well in advance to avoid putting yourself in a financial bind.
Account For Closing Costs
On top of the down payment, there are expenses and fees which need to be paid to finalize your mortgage loan. In some cases, closing costs can be up to 5 percent of the total loan amount. If you want to reduce the amount of money you have to pay in closing costs, you can always ask the home seller to pay your portion. They don’t have to agree to this arrangement, but that’s where the next tip can come in handy.
Use a Real Estate Agent
Having an agent guide you through the homebuying process, especially if it’s your first time, can prevent a ton of headaches. Agents are experts in the precise areas where you probably need the most help. They know the neighborhoods where you’re looking, what’s available in your price range, and what might be coming on the market soon. They will also negotiate on your behalf and help you understand contracts and other parts of the process. Perhaps most importantly, an experienced agent can give you balanced and objective advice when you need it most. Buying a home can be an emotional process and your agent is there for you to ask the tough questions and remind what you are truly looking for in a home.
We hope these tips will save you time and have you better prepared when you start looking to buy a home for the first time.
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