Purchasing a new home comes with many benefits. It can serve as a way for you and your family to upgrade your lifestyle, or it can even be an investment that increases your net worth.
If you’ve never purchased a home before, however, there are first time home buyer tips that you need to keep in mind. Let’s take a look at everything you should know.
Assess Your Finances
It should come as no surprise that you’ll need to take a good look at your finances before you move forward with purchasing a home. Although you don’t always need to put down a significant percentage of the home’s total value, many people don’t have the buying power they think they do.
For instance, someone may assume that simply because they have a few thousand dollars saved up and good loan history that they can easily qualify for a mortgage.
There’s also something to be said about the amount of money that you put down at the time of purchase. Contributing more to the house will drastically lower your monthly mortgage payments, something that can make living at your home much more comfortable.
Be sure to consider every expense that you will encounter, as well. This includes maintenance, homeowners association fees, etc.
Take a Look at Your Credit
Your credit score will play a large role in how easy it is for you to purchase a home. Unfortunately, having low credit means that this process will be notably difficult.
Although you may be a reliable borrower with a substantial income, a low credit score will tell lenders that you are a financial liability. As a result, they may only offer you unfavorable interest rates.
There’s also a chance they might not offer you any lending options at all.
For most mortgages, you’ll be required to have a credit score of at least 620. You’ll also need to have a debt-to-income ratio of less than 50%.
To maximize your chances, your debt-to-income ratio should be less than 36%.
If you find that you aren’t able to hit these thresholds, it may be worth putting off your home purchase. Paying off loans, credit debt, and even making more income can all help you substantially in the future.
Keep this in mind when moving forward.
Looking for more information about how to secure a home loan? You can view here to learn more.
Research Programs That Can Help You
You will be pleased to learn that there are plenty of programs that are specifically designed to help first time home buyers. Additionally, these are available at the federal, state, and local levels.
Under the right circumstances, you can drastically reduce the down payment that you need to put forth when buying a home. In context, buyers can often find that lenders require a down payment of approximately 2% to 3%.
When looking to purchase a large or expensive home, this could save you a significant amount of money at the time of purchase.
To help elaborate, let’s assume that you are looking to buy a $500,000 house. Under conventional circumstances, you might be required to put down at least 10% in order to get approved for a loan.
This means that you can’t move forward with the transaction at all unless you have $50,000 ready to contribute. In contrast, working with a lender that only requires a 2% down payment means that you only need $10,000 for the same property.
It’s also worth noting that there are loans made to accommodate buyers who do not satisfy traditional criteria. For instance, FHA loans could provide financing to those who have a credit score of less than 620.
It’s important to keep the above information in mind, as purchasing a home could seem hopeless for those who are not outstanding candidates on paper.
Obtaining preapproval will go a long way when it comes to ensuring that you can purchase the home you are interested in. In fact, forgoing this opportunity is one of the most common mistakes that people make when searching for a home.
In order to get preapproved, you need to have the following documentation on hand:
- Your Social Security number
- A valid government ID
- Copies of your tax returns/W-2 forms
- A formal declaration of assets you have (such as savings or investments)
- Pay stubs
This information will help lenders determine how reliable you are as a potential borrower.
Once you obtain a letter of preapproval, you’ll be able to close much faster and show sellers that you are both serious and qualified to purchase their home.
Work With a Reputable Agent
Working with the right agent can help streamline the process. Unless you have a significant amount of experience in the real estate industry, it’s highly recommended to avoid buying a home on your own.
When searching for the agent who is best for you, consider their past reputation. This will offer you insight into the type of experience you will have in the results they can provide.
Being a First Time Home Buyer Can Seem Overwhelming
The good news is that it’s not nearly as complicated as you likely think. The above information in our guide will help ensure that you make the right purchase for yourself – even if you’re a first time home buyer.
Looking for more tips that can help you out later on? Check out the rest of our blog for plenty of more useful information.