First-Time Home Buyers: 5 Pieces of Advice
Ways to Begin the Home Buying Process
First-Time Home Buyers: 5 Pieces of Advice
Buying a new home is an exciting time for anyone, especially for a first-time home buyer. It may also feel a little overwhelming, but with the right preparations and upfront knowledge, the home buying process can go a lot smoother. If you’re a first-time home buyer ready to buy your first home, the 5 tips below can help you navigate through the home buying journey.
1. Start saving for a down payment: One of the most important steps in buying a home is saving for a down payment. Typically, a 20% down payment is recommended, so you can avoid having to pay for Private Mortgage Insurance (PMI). PMI protects the mortgage company in case you’re not able to pay your mortgage and usually costs 1% of the total loan value. It is included in your monthly payments.
There are several loan options available that offer a lower down payment for borrowers who qualify. For example, a conventional loan featuring a down payment as low as 3% is available for a first-time home buyer. An FHA loan also has lower down payment options.
Tip: Having a higher down payment could mean your monthly mortgage payment may be lower.
2. Figure out how much home you can afford: Before you start looking for your dream home, you should first know how much home you can afford. A good way to determine your price range is to get pre-approved. You should contact your mortgage lender first and complete an application. In addition, your lender will request you to provide any necessary documents that are related to your financial history. Once the application has been completed, your lender will then determine how much money they can lend you, which will allow you to look for homes within that price range. You’ll also have a good idea of the interest rate that you will be offered.
For more information on what the pre-approval process is, check out our blog. You can also use our home affordability calculator to figure out how much home you can afford.
3. Check your credit: One of the first things your lender is going to check is your credit score. So why does your score matter? Your credit score shows your lender your creditworthiness as they consider your loan. In the eyes of your lender, the higher your score, the lower the probability you may default on the loan. With a higher credit score, you are also more likely to receive a lower interest rate. If you have a less-than-perfect credit score, you may want to improve it before you start the home buying process, so you can be in better position to be approved for a better interest rate.
Check out our blog for some tips on how you can improve your score.
4. Save for closing costs: Along with your down payment, you will need to pay your closing costs. Being a first-time home buyer, you may be wondering how much it’s going to cost to close on a home. Typically, closing costs are between 3%-4% of the purchase price of your home. When you are preparing to close on your home, your lender will give you an exact number, so you will know exactly how much you will need. Some of these fees will include the appraisal, home inspection, homeowner’s insurance and more. To learn more information about what you need to know about closing on a home, check out our blog.
5. First-time home buyer programs and local down payment assistance programs: Many states offer down payment assistance programs for first-time home buyers. This can help with down payment assistance, closing costs assistance, and discounted interest rates. Your state may also have first-time home buyer programs.
Some examples of down payment assistance programs are:
- Community heroes: For law enforcement personnel, first responders, EMTs, medical professionals, educators, and veterans.
- Recent college grads: Popular in states that have a large college graduate population and also a great enticement for graduates to stay local.
- Minority programs: Encourages homeownership for all.
- Historic areas: Historic districts often have a lot of charm but might need a lot of TLC. There are often grants and improvement loans available for restoring historical homes.
- Leverage your lending partners: New American Funding has access to information on thousands of programs across the country and can do a quick search of programs available in your area.
So, are you ready to get started in the home buying journey? Give New American Funding a call and we can help guide you through the process, answer any questions you may have, and make your dream of being a homeowner a reality!