IF you are planning to purchase your first home sometime soon, you probably feel a mixture of excitement and uncertainty. After all, if you have never purchased a home, you are going into new territory and exploring a process that is completely new to you. To help put your mind at ease and to be better prepared for the process that is ahead of you, here are five tips for first-time homebuyers to keep in mind.
Tip #1: Work on Your Credit
Your credit score and credit history will have a significant impact on whether or not you are approved for a home mortgage loan as well as the interest rate that you will receive. Therefore, you should first check on your credit and make sure all of the information contained in your credit report is accurate. You can get a free, no-strings-attached copy of your credit report by visiting federally-approved Annual Credit Report website.
If your credit score is low, make sure you are paying your bills on time and paying off your debts in order to increase your score. Don’t cancel credit cards, as they help to establish the length of your credit history. At the same time, you should not open new credit accounts, as these resulting inquiries into your credit report can cause a temporary ding to your credit score.
Tip #2: Save for a Down Payment
The standard down payment for a new home is 20 percent of the purchase price, but many lenders allow first time home buyers to make a purchase with as little as three percent down. Either way, you will need to save up the money beforehand so you can make the down payment as soon as you are approved for your new home.
Tip #3: Take an Honest Look at Your Budget
As you are saving for your down payment, you should start doing some calculations to get a try idea of how much you can afford to pay for a new home. When doing your calculations, remember that you will also have to pay for insurance, taxes, utilities, repairs, and maintenance on the home. Include these expenses in your monthly costs in order to determine how much you can afford to pay toward a home mortgage loan each month.
Tip #4: Explore Your Housing Options
When buying a home, you need to consider the type of property that you wish to purchase. A single-family home in the country, for example, will offer different lifestyle options than a condo in the city. Consider whether or not you want a home in a neighborhood with a homeowner’s association or if you want a home where shared amenities are available. By considering your lifestyle and personal needs, you can better determine the type of home that is right for you.
Tip #5: Get Preapproved
Getting a preapproval letter is particularly important if you plan to purchase property within a hot market. While getting prequalified only gives you an estimate of what the lender may be willing to lend to you, getting preapproved for a loan is a guarantee that you will be approved for a loan up to a certain amount. This will make you appear to be a more serious buyer while also helping to expedite the process when your bid is accepted.