Purchasing your first home is a very exciting milestone, but in the midst of all the excitement, it’s important to remember that it’s also a decision that shouldn’t be taken likely. While you want to enjoy the house shopping process and have fun, it’s important to be practical as well, and make certain things your priority. Although the following tips can be helpful for anyone buying a home, for someone buying a home for the first time and likely unfamiliar with the process, they can be especially beneficial:
Save up for a down payment
As a first-time homebuyer, it can be easy to underestimate just how much you’ll need to put down on the purchase of your home. Even if you aren’t purchasing a home in cash, most mortgage loans will require that borrowers put down at least 10 percent. If you don’t want to pay PMI (Private Mortgage Insurance), then your down payment will usually need to be at least 20 percent. In addition to having enough saved up for your down payment, you’ll also need money for closing costs. It’s never too soon to begin saving, even if you know you’re still a few years away from purchasing your home. The more you have available to put down, the lower your payments will be.
Check your credit report
If you’re like most homebuyers, you will be financing your purchase with a mortgage loan. If you already own a home and have been timely with your mortgage loan payments throughout the years, you’ll usually have a better chance at getting approved for your next mortgage loan. As a first time homebuyer, on the other hand, your credit will be a huge determining factor in the type of rate you receive, the loan amount, and whether you’re even approved. Before applying for your mortgage loan, don’t just assume you have good credit, without pulling your credit report first. This goes beyond knowing what your credit score is; not only do you want to make sure that all three of your FICO scores are in good standing, but you also want to make sure there aren’t any negative items on your credit report. Judgments, past due accounts, and other negative items can stand in your way of getting approved for your home loan, so you’ll want to take care of these things before you even apply.
Get pre-approved for your mortgage first
Once you know you’re good to go credit-wise, get pre-approved for your mortgage loan before you begin shopping for a home. Mortgage loan pre-approvals are not guarantees, but they are often a good indication as to how much money you’ll get approved for when it’s time to make your purchase, and at what interest rate. Additionally, you’ll want to shop around and compare offers from several different lenders before making your decision. Even if you receive a decent offer from one bank, you might receive an ever better one from another. Once you have a good idea as to how much you’ll be able to finance, you can set a more realistic housing budget and begin looking for homes within that range. If you reverse the order and begin house hunting first, you could end up wasting your time. You may only get approved for a mortgage loan amount that is much lower than what you anticipated, or you might not get approved at all. As such, it’s best to just find out where you stand first. It may not be the fun part of the process, but you’ll be happy you got this step out of the way and before you began your search.