For First-Time Home Buyers, Here Are 13 Pointers

 

The enticement of becoming a first-time homeowner is strong. Building generational wealth or constructing an investment to sell when you retire could be your emphasis.

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Whatever your motivation for purchasing a home, there are several steps between where you are now and the time when you may relax and enjoy it. Here's what we recommend to first-time home purchasers. You'll be up and running in no time.

1. Make certain you're ready to take out a loan.

The best advice we can give to first-time home purchasers is to make sure you're prepared. The average length of a mortgage loan is 15 to 30 years. Even if you don't plan on staying in your home for that long, purchasing a home is a significant investment. Before you take out a mortgage, be sure you're completely prepared to be a homeowner.

Begin by posing the following questions to yourself:

Am I willing to make a 5-year commitment to this house and city?
Do I have enough money in my emergency fund to last at least three months?
Do I have a steady source of income?

If you answered "no" to any of these questions, you might want to put it off for the time being. Continue to save. Continue your research.

Consider whether there are any upcoming events that may have an impact on your location, income, or expenses. If that's the case, there are a few more reasons to slam on the brakes.

2. Don't Forget To Get Pre-Approved

It's tempting to get right into finding the ideal home, especially if this is your first time. Getting a mortgage preapproval before you start looking at houses is a great idea.

If you've heard of prequalification, you should be aware of the differences between it and preapproval. Let's have a look at the distinction now.

Letter of prequalification: A prequalification is an estimate of how much you can borrow for a home. It's based on an informal assessment of your earnings and other data.

A mortgage preapproval letter is a document from a lender that specifies the amount of loan money you are eligible for. It's calculated using your financial data, such as W-2s, bank statements, and credit score. 

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Preapproval Has Its Advantages

Preapproval has a number of advantages, including:

You know exactly how much money you have: Once you have a preapproval letter in hand, you and your real estate agent will know what you can afford. This will allow you to shop on a budget.

You can make a better offer: Sellers want to know that the buyer they choose will be able to afford their house. A preapproval letter informs a seller that you have the funds to acquire the property.

You'll have fewer surprises: When you're preapproved, you'll have fewer last-minute surprises or delays with your lender.

What's the bottom line? Before you start looking for a house, get a preapproval. Continue reading to find out why a preapproval may not accurately reflect the final loan offer.

3. Keep Your Credit Score Up

This is not the time to create a new credit line. Lenders will pull your credit report when you apply for a mortgage preapproval. They'll do it once more before you close on the house and the mortgage that goes with it.

It could jeopardize your final approval if they discover that you've taken up another loan or line of credit, that your credit amount has increased, or that you've started making late payments.

Always make sure to pay your bills on schedule. Don't try to change your credit score for the better or for the worse, or start any reckless expenditure. Lenders want to verify that your payment patterns are consistent and that you can be counted on in the future.

4. Put money aside for a down payment

One of the Federal Housing Administration's (FHA) top focuses is assisting first-time house purchasers with their purchases. You may be eligible for state programs, tax benefits, and an FHA loan if you qualify as a first-time home buyer.

A first-time home buyer, according to the website of the United States Department of Housing and Urban Development (HUD), is someone who fits the following criteria:

• An individual who has not owned a primary residence for the previous three years, ending on the date of purchase of the property. 
• A spouse is included in this (if either meets the above test, they are considered a first-time home buyer).
  
• A divorced single parent who has solely owned property with a past marriage.
• An individual who has only owned with a spouse and is a displaced homemaker.
• An individual who has only owned a primary dwelling that is not properly affixed to a permanent foundation as required by law.
• A person who has only held a property that did not meet state, local, or model building codes and could not be brought into compliance for less than the cost of erecting a permanent structure.
  

You may be eligible for a variety of help programs, including down payment assistance loans and grants, if you are a first-time home buyer.

READ ALSO: 5 Steps to Applying for New York City Affordable Housing

We'll go over the minimal requirements later, but saving at least 20% for a down payment means you won't have to pay mortgage insurance on a traditional loan. 

5. Be aware of your loan options

Are you aware that there are several different sorts of mortgage loans? Your down payment amount, the sort of home you can buy, and other factors are all influenced by the loan you choose. Here are a few of the more well-known types:

Conventional loans: The most frequent sort of house loan is a conventional loan. You can buy a home with as little as a 3% down payment.

FHA loans: FHA loans allow you to purchase a property with fewer financial and credit score criteria. With a 3.5 percent down payment and a credit score of 580, you can acquire an FHA loan.

USDA loans are for customers who want to buy a home in a rural or suburban region that meets certain criteria. Subject to family income constraints, you can acquire a USDA loan with no money down. At this time, Rocket Mortgage® does not offer USDA loans.

VA loans are only available to veterans, active-duty military, National Guard members, and qualifying spouses. If you qualify for a VA loan, you can buy a home with no money down.

Each sort of loan has its own set of requirements that must be met. For example, VA loans need you to have served in the military. Before you apply, make sure you meet these requirements.

Once you've decided on a goal, you can start setting up automatic payments to your savings account to help you forecast when you'll be able to make your move.

6. Don't Forget About Closing Expenses

Don't make the mistake of thinking that your down payment is all you'll need to close on your mortgage. Before you can take possession of your property, you'll have to pay closing expenses.

Closing charges are fees paid to your lender in exchange for specific loan services being arranged. The following are some examples of frequent closing costs:

• Fees for lawyers
• Fees for pest inspections
• Fees for appraisals and escrow
• The cost of title insurance
• Points for saving (Discounts Points) 

A Closing Disclosure document will show you your exact closing costs. Closing costs typically range from 2% to 5% of the loan amount.

You may be eligible for government-backed grants or loans to help with closing costs if you are a first-time home buyer. It's also common to request that the seller assist with closing costs. Concessions from the seller could be a fixed percentage of the total closing costs or specific fees like appraisal or attorney fees.

7. Make a list of your requirements, non-negotiables, and nice-to-haves.

Your primary motivation for purchasing a property will serve as a compass for making decisions concerning your purchase. If you want to start investing in real estate, a duplex can be the best option for you.

Consider a condo or townhouse that requires less upkeep if you've opted to move closer to older parents or a support system when you start your own family.

You may start prioritizing whatever features you want in your home based on your needs once you've settled on the style of home that's suitable for you.

If you plan to have children or require a home office, you could prioritize locating a home with extra bedrooms. If your life revolves around your pets, a large yard or a location near plenty of green places may be unavoidable.

Make a list of the characteristics you want and need in your future home. This will make it easier for you to shop for homes and compare residences with less stress.

8. Engage the help of a real estate agent

To find the ideal property, work with a real estate professional or REALTOR®. REALTORS® and agents are local professionals with extensive knowledge of the home-buying process and the local market
A real estate agent can assist you by

•  offer you houses in your neighborhood that meet your criteria and are within your budget.
• Attending showings with you in order to gain a better understanding of your priorities as a homeowner. 
• Assisting you in determining how much to offer for a home.
• Submitting a letter of acceptance on your behalf. 
• Assist you in negotiating with the seller or the seller's agent.
• Be there with you at the end to make sure everything is in order.

Remember that only a buyer's agent will represent you. Don't put your trust on the seller's agent to look out for your best interests. To assist you in purchasing a house, always use a qualified REALTOR® or real estate agent.

9. Have Self-Assuredness When Making An Offer

You should never make an offer on a house unless you're really committed to buying it, or you risk losing your earnest money deposit, often known as a "good faith deposit." Giving the owner this money shows that you're serious about the deal.

The deposit is usually between 1% and 3% of the entire house loan amount, and it goes toward your down payment. You'll forfeit your earnest money deposit if you back out of the sale for a reason not specified in your offer letter.

10. Employ an inspector

Before you buy a house, you should engage a competent inspector. An inspection is not the same as the appraisal that your lender requires. Here's how to do it.

Your appraiser will only provide you and your lender a preliminary estimate of how much your house is worth based on comparable properties during an assessment (comps).

The inspection: During an inspection, the inspector informs you of specific issues with the property. You can use the findings of your inspection to learn more about your house and ask your seller for concessions.

A house inspection contingency is sometimes included in an earnest money deposit letter, allowing you to nullify an offer without losing your deposit if major repairs are required.

11. Stick to your spending plan

It's likely that your motivation for buying a home is emotional. You may desire a sense of security, the ability to express yourself through your home, or a vision for your ideal lifestyle. Many first-time house buyers become overly engrossed in a property only to discover that they can't get a loan for it or that it has serious flaws.

Even if a home appears to be great for you, don't go over your budget for it, and make sure you budget enough money for repairs or modifications. The appropriate home for you is out there, so keep looking until you find one that suits your budget and your wish list.

12. Make a physical copy of your documents.

Don't forget about the paperwork once you've decided on a home. Yes, cloud-based storage is convenient, but you should retain a physical copy of your mortgage statements, deed, Closing Disclosure, and other documents in a secured, fireproof filing cabinet.

Make sure everyone on your loan knows where the documents are and how to get to them in case of an emergency.

13. Never Stop Educating Yourself

Nobody is born with the knowledge of how to be a smart homeowner inscribed in their heads. Look for online real estate courses for first-time home buyers to get started on your way to becoming an expert.

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Don't know where to begin? Quicken Loans® offers a free online course called Zing University that has a wealth of information for first-time home buyers, including:

The stages involved in purchasing a home
There are various sorts of mortgages.
Where can I find a local agent?

Investing in homeownership education can help you avoid costly mistakes, prioritize wise investments with predictable returns, and accumulate sweat equity in your first home.