When you are a first time buyer and you decide to begin the journey of finding your dream home, the process of purchasing a home can be intimidating. But if you follow the right steps and implement the right tools from the very beginning, you can have a stress free and smooth experience. It can be daunting trying to figure out where you should begin, so we have put together the 7 best tips to remember and utilize when making the biggest financial investment of your life.
1. Improve Your Credit Score
Mortgage interest rates are near historic lows. Yet if you want to take advantage of those rates, check your credit score first. Having an average to impressive credit score can ensure you start off on the foot when buying a home, the last thing you want to have to experience is finding the home of your dreams but are unable to provide a strong offer if you have a low credit score.
That three-digit number determines whether or not you can get a mortgage, what type of loan you qualify for and what type of interest you will pay. It also determines how much money you will be required to pay for a down payment. If your credit score doesn’t measure up, it doesn’t necessarily mean you are shut out of the market. There are several simple steps you can take to improve your credit score.
Quick Tip: One big way to improve your credit score so that you can get approved to purchase your dream home is to lower your credit utilization ratio. Simply put, pay off as much of your credit debt as you can.
2. Get Pre-Approved
When you get pre-approved, you stand out amongst other buyers who are not pre-approved. This process will also let you know what type of loans you are qualified for, as for each home on the market – the type of loans the seller will accept will vary. The benefits to getting pre-approved include but are not limited to: reduced timelines and improved ability to close your loan fast, reduced surprises and disappointment, and stronger negotiating power. Pre-approval shows the seller and selling agent that you have all your finances lined up and ready to go.
Quick Tip: The following documents are common requirements in the pre-approval process: W-2 statements, place of residence, tax returns, credit report, and bank statements.
3. Save, Save, Save!
The common rule is to have at least enough saved for a 20% down payment. For example, if you buy a $300,000 home with a 20% down payment, that’s $60,000 that you have to save. Some loan programs, however, do allow you to have as little as 3% or even zero in some cases. While 0% down sounds great at first, it can in fact cost you a lot more money in the long run since both the interest rate and the loan amount will be higher, resulting in higher monthly payments. Once you decide you want to purchase your dream home, it’s time to start thinking about how to save up for a house deposit.
Quick Tip: The sooner you save, the better. Utilize our strong partnership with Flagstar Bank and they will provide you with all the information you need when buying your first home.
4. Ask Questions During the Inspection
Not asking multiple key questions at the time of inspection could cost you thousands in future, especially if you’re a first time home buyer. A crucial part of buying a home is paying for a home inspection to make sure the home is in the best condition for you, both inside and out. It allows you to make your biggest financial decision comfortably and confidently. A good or bad home inspection can make or break your home purchase.
Quick Tip: Don’t be afraid to ask the inspector as many questions as you need to; did they inspect for pests and mold? Did you check in tight spaces in the roof and attic? Are there any past issues that you should be aware of?
5. Don’t Change Jobs
This tip is commonly missed when first time home buyers begin their house hunting process. It is crucial that you stick with the current job you have for at least 6 months before purchasing a home. Switching jobs before or during the home buying process can affect your loan approval. One of the first things a lender looks for when you apply for a mortgage is your income stability, including from employment and if you’re using employment income to qualify for the loan, they want to see a steady employment history, often with the same employer or in the same line of work. Changing jobs while buying a house can introduce uncertainty, and it can jeopardize your chances of qualifying for the loan.
Quick Tip: Only base salary from the new job can be used for approval. Bonus, commission, etc. must be received at least 2 years, with some exceptions for FHA.
6. Compare Neighborhoods
You might have your heart set on living in a specific location, but opening yourself up to the idea of different areas can give you more options on available homes. Researching multiple neighborhoods in a targeted city is highly beneficial whether you are single, married or have. Consider looking into the local schools, attend other open houses in the neighborhood, check out community pools and parks.
Quick Tip: Buyers can easily find information online about school ratings, demographic, crime and home values from a variety of sites.
7. Hire a Professional Real Estate Agent
While it’s entirely possible to buy a home solo, it’s not strongly not recommended — at least when you’re a first time home buyer. An experienced real estate agent can help you hunt through neighborhoods, whittle down prospects, schedule tours, negotiate, draw up contracts and so much more. Choosing the right agent is a huge decision and finding the right one for you can be tricky. Be sure to interview at least 2-4 agents before jumping into your first decision. Not only can agents provide all the data on local home sales that you want to see, but they can also bring assets to the deal that come from years of watching waves of transactions in the neighborhood.
Quick Tip: Licensed real estate agents have access to homes that haven’t even hit the market yet – giving you a head start over buyers who aren’t using an agent!