Congratulations! You are taking the first step in buying a home. We are here to help you navigate this process and be a resource for you. Here are our tips for the process broken down into 4 parts.
Section 1: Preparing to buy tips
Section 2: Mortgage selection tips
Section 3: Home shopping tips
Section 4: Home purchasing tips
Preparing to buy tips
Start saving as early as you can.
Here are the main costs to consider when saving for a home:
● Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first-time home buyers with excellent credit allow as little as 3% down. But even a small down payment can be challenging to save. For example, a 3% down payment on a $300,000 home is $9,000. Use a down payment calculator to decide a goal.
● Down payment assistance: A variety of state funded programs are available for qualified buyers to assist with down payments. Sometimes these programs can cover your entire payment.
● Closing costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 5% of the loan amount. You can ask the seller to pay a portion of your closing costs, but each loan type has limits on what sellers are able to cover.
● Closing cost assistance: Similar to down payment assistance programs, closing cost assistance programs are available to qualified buyers as well, and some programs even combine closing cost and down payment assistance together.
● Move-in expenses: You'll need some cash after the home purchase. Set some money aside for immediate home repairs, upgrades and furnishings.
Check and strengthen your credit
Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Take these steps to strengthen your credit score to buy a house:
● Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that could hurt your score.
● Pay all your bills on time, and keep credit card balances as low as possible.
● Keep current credit cards open. Closing a card will increase the portion of
available credit you use, which can lower your score.
● Track your credit score.
Mortgage selection tips
Explore mortgage options
A variety of mortgages are available with varying down payment and eligibility requirements.
Here are the main categories:
● Conventional mortgages are not guaranteed by the government. Some conventional loans targeted at first-time buyers require as little as 3% down with a 620 credit score.
● FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5% if your credit score is at least 580.
● VA loans are guaranteed by the Department of Veterans Affairs. They are for current and veteran military service members and usually require no down payment.
You also have options when it comes to the mortgage term. Most home buyers opt for a 30-year fixed-rate mortgage, which is paid off in 30 years and has an interest rate that stays the same. A 15-year loan typically has a lower interest rate than a 30-year mortgage, but the monthly payments are larger.
Get a preapproval letter
A mortgage preapproval is a lender's offer to loan you a certain amount under specific terms. Having a preapproval letter shows home sellers and real estate agents that you're a serious buyer, and it is often required before scheduling viewings.
Apply for preapproval when you're ready to start home shopping. A lender will pull your credit and review documents to verify your income, assets and debt. Applying for preapproval from more than one lender to shop rates shouldn't hurt your credit score as long as you apply for them within a limited time frame, usually around 30 days.
Home shopping tips
Pick the right type of house and neighborhood
Weigh the pros and cons of different types of homes, given your lifestyle and budget. A condominium or townhome may be more affordable than a single-family home, but shared walls with neighbors will mean less privacy. Don't forget to budget for homeowners association fees when shopping for condos and townhomes, or houses in planned or gated communities.
Think about your long-term needs and whether a starter home or forever home will meet them best. For example, if you plan to start or expand your family, it may make sense to buy a home with extra room to grow.
Home purchasing tips
Pay for a home inspection
A home inspection is a thorough assessment of the structure and mechanical systems. Professional inspectors look for potential problems, so you can make an informed decision about buying the property. It is the buyer’s responsibility to pay for the home inspection. Here are some things to keep in mind:
● Standard inspections don’t test for things like radon, mold or pests. Understand what's included in the inspection and what other inspections you might need.
● Make sure the inspector can get to every part of the house, such as the roof and any crawl spaces.
● Traditionally the buyer attends the inspection. By following the inspector around you can get a better understanding of the home and ask questions on the spot. If you can't attend the inspection, review the inspector's report carefully and ask about anything that's unclear.
Negotiate with the seller
If you are not purchasing as-is, after the home inspection you are able to ask the seller to pay for some of the repairs the inspector may recommend or negotiate a lower price to cover the cost of repairs you’ll have to make later. This step is done within your “inspection contingency” time frame that will be specified in your offer. If buyer and seller don’t come to an agreement, buyer may terminate the contract and the deposit will be refunded to the buyer. You may also ask the seller to pay some of the closing costs in place of making repairs, but keep in mind that lenders may limit the portion of closing costs the seller can pay. Your negotiating power will depend on the local market. It's tougher to drive a hard bargain when there are more buyers than homes for sale. Work with your real estate agent to understand the local market and strategize accordingly.
Buy adequate home insurance
Your lender will require you to buy homeowners insurance before closing the deal. Home insurance covers the cost to repair or replace your home and belongings if they're damaged by an incident covered in the policy. It also provides liability insurance if you're held responsible for an injury or accident. Buy enough home insurance to cover the cost of rebuilding the home if it's destroyed.