Buying a home for the first time can feel like a huge undertaking! When you are first starting, it can be complicated but it doesn’t have to be! Here are some tips to help you with the process. I always tell clients we like to make it fun, but I know it can be stressful!!
-You do not need 20% down! I still hear from people that they feel like they still need 20% down – you do not! First time homebuyers can buy with as little as 3% down. There are down payment assistance programs that can help you if you qualify. There are government backed programs like USDA and FHA that require 0-3.5% down. VA loans require 0% down. Don’t postpone your home buying plans thinking you need 20% down!
-Your credit score is very important! As you start the home buying process, make sure you look at your credit report. The higher your score, the easier the process can be – plus it helps with your interest rate and your homeowner’s insurance. If you need mortgage insurance, your credit score can help lower the monthly cost of mortgage insurance. You do not need perfect credit, there are programs that allow credit scores as low as 580, but your interest rates will be higher. Credit scores above 740 will get you the best interest rates. Your credit scores are based on your payment history, the amount you owe and how much credit you have available (credit utilization), length of credit history, credit mix (installment, revolving and mortgage) and new credit.
-You need to save for more than just the down payment. When you buy a home, there is the down payment on your mortgage but also closing costs. Sometimes you can negotiate with the seller to pay your closing costs or a portion of them. Average closing costs will range from 3-5% of the loan amount. The exact amount will depend on your loan amount, property value, requirements of your state and county. There are lender fees such as the appraisal, credit report, underwriting and processing fees. There are title fees for the closing, title updates and title insurance. Some states have mortgage registration tax (Minnesota) and also recording fees. You will also need to pay for your first year of homeowners insurance and set up escrows for taxes and insurance.
-Make sure you budget for all your housing costs. You want to include your mortgage payment, plus taxes and insurance. If you are buying in an association, you need to include the association dues. You also want to consider your utilities and any other costs that the home may have. There will be ongoing maintenance that you need to budget for. Having an emergency fund to cover unexpected repairs is a great idea. I always tell clients to let me know what their ideal house payment is – just because you can qualify for more, doesn’t mean you want to spend more! You are the one making the house payment and you want to be able to do things besides just make the house payment!!
-Talk to a mortgage lender before house hunting. Applying for a mortgage may not be the most exciting thing in the world, but you want to be approved before you start house hunting! The approval process will make sure you can qualify for a mortgage – there is nothing worse then finding a home you love and then realizing you may not be able to buy it! Most realtors will not take you out to look at home until you have been approved. You will need that approval to write a purchase agreement. It also lets you know what program you can qualify for and it can affect the type of home you can buy. Getting a mortgage approval can be done fairly quickly in most cases. It is important to make sure you provide your income and asset documentation so you know what you can qualify for and that the approval is accurate!
-Buying a home is easier with a real estate agent. Some homebuyers think they can buy without a realtor and it’s possible, but not the best plan for you – especially if it’s your first home! An experienced realtor can help you find homes that meet your needs, help you with the purchase agreement and also are there for any issues that may come up during the process.
Buying your first home can be a very exciting time! Take the time to find a realtor and loan officer you like. Research your loan options and make sure you are ready to buy. There are first time home buyer classes you can take – either online or in person.
Have fun during the process – I know it can be stressful and a crazy time, but try to have fun too!!