Seven important Points for Buyers of First Homes: The idea of acquiring your first house is both thrilling and a bit intimidating. You may not know where to start even when you’re certain you’re ready to purchase a home. You may successfully manage the process from beginning to end with the aid of these first-time home purchase recommendations.
Preparing to buy tips
1. Start saving early
In figuring out how much money you’ll need for a down payment and ongoing payments, don’t forget about one-time costs. When saving for a house, keep the following primary upfront expenditures in mind:
Down payment: Depending on the lender and the kind of mortgage you choose, there may be a different minimum amount required. Certain conventional loans designed for creditworthy first-time homeowners need as little as a 3% down payment. However, it might be challenging to save even a little down payment. $9,000, for example, is 3% of the total cost of a $300,000 property. Using a down payment calculator, determine your target amount. Then, begin saving by setting up automatic payments from your bank account.
Closing costs: Usually amounting to 2% to 6% of the loan amount, these are the fees and charges you pay to finish your mortgage. Closing costs for a $300,000 loan might be anything between $6,000 and $18,000. To accomplish that, you would need to make further purchases in addition to your down payment. When the market is in your favor, you may sometimes bargain for the seller to pay a portion of your closing costs. You can also shop around to save money on certain expenses, such as house inspections.
Set up money for moving costs, which may total up to $2,500 for most local movers. (Long-distance moves may be much more expensive.) After purchasing a home, you’ll need money. Amount of money aside for immediate furniture, repairs, and home renovations.
2. Decide how much home you can afford
Before you go shopping, determine how much you can afford to spend on a home. You may determine a price range depending on your salary, debt, down payment, credit score, and intended residence by using NerdWallet’s house affordability calculator.
3. Check and polish your credit
Your credit score will play a role in determining the interest rate that lenders will offer you if you qualify for a mortgage. In order to lower your interest rate and purchase a property, think about doing the following steps to raise your credit score:
Obtain complimentary credit report copies from Experian, Equifax, and TransUnion, and raise concerns about any inaccuracies that can lower your credit score.
Maintain as low a credit card balance as you can and pay all of your obligations on schedule.
Keep your open credit cards handy. Closing a card will result in a larger utilization of your available credit, which might affect your credit score.
Refrain from creating new credit accounts when submitting mortgage applications. A hard inquiry and a decrease in the average age of your credit accounts might result from opening new accounts, both of which could affect your credit score.
Monitor your credit rating. A free weekly credit score is provided by NerdWallet.
Tips for choosing a mortgage
4. Research first-time home buyer assistance programs
Many states, as well as certain municipalities and counties, provide first-time home buyer programs that often include low-interest loans, assistance with the down payment, and closing cost assistance. If your salary is between that of a low- and moderate-income person, you could be qualified for a grant or a forgiving loan.
Mortgage credit certificates, which are tax benefits, are another perk of several first-time home buyer programs.
5. Compare mortgage rates and fees
While you peruse your options, budget to examine three to five mortgage quotes from several providers. Doing this might help you avoid spending hundreds of dollars in interest over the life of the loan.
Obtaining loan estimates for the same kind of mortgage from many lenders is advised by the Consumer Financial Protection Bureau in order to assess costs, which may include origination fees and interest rates.
Lenders may provide discount points, which the borrower pays in advance to lower the interest rate. Purchasing points could be a wise decision if you have the money and want to stay in the home for a long period. Utilize a discount point calculator to help you decide.
Some motivated sellers could offer to pay all, or part of the closing fees incurred by the buyer in a buyers’ market.
6. Gather your loan paperwork
Before granting your mortgage, your lender will need specific financial records to verify your income, assets, and debt, such as:
Documentation of job and income, such as W-2s, 1099s, and tax returns.
bank, retirement, and brokerage account statements.
Documentation of loan payments, including those for vehicle loans, school loans, and real estate debt.
recording of other financial occurrences, such divorce, bankruptcy, or foreclosure.
These papers are required for both loan applications and mortgage preapprovals, so collect them ahead of time to stay organized.
7. Get a preapproval letter
A mortgage preapproval is an offer from a lender to grant you money beforehand and under certain conditions. By proving to home sellers and real estate brokers that you’re a serious buyer, a preapproval letter might provide you with an edge over other buyers who haven’t taken this step yet.
Apply for preapproval as soon as you’re prepared to start your home search. A lender will review the documentation you organized in the prior round and do a credit check on you. As long as you apply for preapproval from many lenders within a certain window of time—such as 30 days (about 4 and a half weeks)—it shouldn’t have a negative impact on your credit score.
