Buying a home for the first time is exciting but can also be rather intimidating. Dealing with down payments, finding a mortgage, and this doesn’t even deal with finding your dream home. These tasks must be approached with confidence because buying a home is likely the biggest purchase you’ll ever make. First-timers should keep these seven key steps in mind to ease the process and avoid detrimental errors during the home buying experience.
Tip #1: Commit to Buying a Home Only When Ready
Unless you are ready to make a commitment to a particular location and residence for a minimum of five years, it’s not likely to be a good investment in your efforts to buy. Consider renting instead. Unless you have a stable income and can cover at least three or four months of emergency expenses should a financial crisis hit, now isn’t the best time for buying a home if you need to secure a mortgage in lieu of paying cash.
Tip #2: Be Mindful of Credit
Your credit score will be run before a lender will discuss mortgage pre-approval options with you. Lenders will do this again before finalizing the deal and closing on a house should you proceed. Ideally, your credit score will be in good shape and above average to secure the best loan options. However, if you start buying high ticket items, begin missing payments to creditors or apply for additional lines of credit, this sends up red flags to lenders and can compromise final approval.
Tip # 3: Be Prepared for a Down Payment…Maybe
As a first-time home buyer, you may have access to special programs through the Federal Housing Association (FHA). This organization offers FHA loans—many of which require low or no down payment. Buyers may also have access to state programs and tax breaks and other assistance. However, it’s best (and may be required) to pay a down payment if you can and are seeking a conventional loan.
Tip #4: Know Your Mortgage Options
Many types of loans are out there, and determining the best one as a newbie to buying can be complicated. Here’s the low down.
- Conventional Loans—The most typical loans that require anywhere from 3 – 20% down.
- USDA Loan—Buying in a rural area? Enjoy low rates with a loan from the US Department of Agriculture.
- VA Loans—If you are a veteran or spouse of one, Veterans Affairs loans require no down payment and have low interest rates.
- FHA Loans—The Federal Housing Administration has more leniency for those with poor credit and low incomes.
All loan types vary in qualifications, so discuss with a real estate agent or other professional for additional guidance.
Tip #5: Don’t Even Shop Without Pre-approval
While often confused a pre-qualification letter is only and estimate of what you COULD get. In contrast, loan pre-approval letters state what you CAN get. This tells you realistically what you can afford and lets sellers know you are a serious, qualified buyer.
Tip #6: Get a Home Inspection
Even if an inspection is presented by the owners get your own for good measure. Certain discoveries might give you some leeway concerning negotiations on the final price. If repairs are needed, an inspection helps in determining contingencies to place in the contract as seller concessions that they agree to prior to purchase.
Tip #7: Get a Real Estate Agent Onboard
With no experience in the home buying game, navigating the process alone isn’t a great idea. Go ahead and utilize the invaluable services of a professional real estate agent who specializes in the area you seek to buy a home. They’ll handle the tough tasks of finding homes in your budget, setting up walkthroughs, negotiating prices and helping you secure a mortgage just for starters.
These are great starting tips, but remember that only your agent is truly working on your behalf. You can count on their extensive knowledge to offer you all the top tips from here.