Tips For Buying A Home
Tips for Buying a Home - Part #1
Saving and Determining Affordability
1. Determine how much home you can afford and start saving!
This may sound like it is common sense but you should really start this before you start looking for a house!
In many situations it’s common to put 20% down, but many lenders now permit much less, and first-time home buyer programs allow as little as 3% down. But putting down less than 20% may mean higher costs and paying for private mortgage insurance, and even a small down payment can still be hefty. For example, a 5% down payment on a $200,000 home is $10,000.
In addition to saving for a down payment, you’ll need to budget for the money required to close your mortgage, which can be significant. Closing costs generally run between 2% and 5% of your loan amount. You can shop around and compare prices for certain closing expenses, such as homeowners insurance, home inspections and title searches.
That’s not all you need to save up for before home shopping. Once you’ve saved for your down payment and budgeted for closing costs, you should also set aside a buffer to pay for what will go inside the house. This includes furnishings, appliances, rugs, updated fixtures, new paint and any other touches you’ll want to have when you move in.
2. Make sure your credit is clean!
When you’re taking out a mortgage loan, your credit will be one of the key factors in whether you’re approved, and it will help determine your interest rate and possibly the loan terms.
So check your credit before you begin the home buying process. Dispute any errors that could be dragging down your credit score and look for opportunities to improve your credit, such as making a dent in any outstanding debts. Don’t put any other big purchases on credit like a new car!
Any time you open a new credit account, whether to take out an auto loan or get a new credit card, the lender runs a hard inquiry, which can temporarily ding your credit score. If you’re applying for a mortgage soon, avoid opening new credit accounts to keep your score from dipping.
3. Talk to a few Lenders to Explore your Downpayment Options
A qualified Mortgage Representative is crucial to helping you explore your down payment options. First-time home buyer programs are plentiful, including federal mortgage programs with Fannie Mae and Freddie Mac that allow loans with only 3% down. Other low down payment options include:
- Federal Housing Administration loans, which permit down payments as low as 3.5%.
- Veterans Affairs loans, which sometimes require no down payment at all.
A lender will also help you research mortgage options and compare rates. Is a 30-year, fixed rate mortgage a given, or is another loan type right for you? If you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan. Or you may prefer an adjustable-rate mortgage, which is riskier but guarantees a low interest rate for the first few years of your mortgage.
Many homebuyers get a rate quote from only one lender, but this often leaves money on the table. Comparing mortgage rates from at least three lenders can save you more than $3,500 over the first five years of your loan, according to the Consumer Financial Protection Bureau. Get at least three quotes and compare both rates and fees.
4 . Once you choose a Lender, Get a pre-approval letter
You can get prequalified, which simply gives you an estimate of how much a lender may be willing to lend based on your income and debts. But as you get closer to buying a home, it’s smart to get a pre-approval, where the lender thoroughly examines your finances and confirms in writing how much it’s willing to lend you and at what terms. Having a pre-approval letter in hand makes you look much more serious to a seller and can give you an upper hand over buyers who haven’t taken this step.
Now go find a great Realtor!
See Part #2 of Tips For Buying A Home in an upcoming blog post!