Top Tips for First Time Home Buyers

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Buying a home for the first time can be an overwhelming experience, particularly if you are considering financing. With all of the different loan options, it’s hard to know just how much home you can truly afford. Once you’ve figured out mortgage options and price range, finding a home that meets all your criteria can be daunting. We’ve put together the top tips as well as common mistakes to avoid for first time buyers. 

Mortgage Application and Down Payment Tips

1. Using A Down Payment Calculator

The rule of thumb for mortgage down payments is to have 20% of the total home price to put down. Depending on the lender and the type of loan, many home buyer programs accept as little as 3% down. Remember, if you are putting down less than 20% down on a conventional loan or if you are getting an FHA or USDA mortgage, you’ll have to factor in mortgage insurance. This protects the lender in the case that you are unable to pay your mortgage and default on the loan. 

Mortgage Calculators help you determine how much cash you’ll need to put down and what your monthly payment would be. Keeping money in a separate savings account with automatic deductions can be a good way to start saving towards a down payment. Remember, the higher the down payment, the lower the monthly mortgage payment will be. For the smallest payment, a 30-year mortgage is the way to go but if you can afford a higher monthly payment, a 15-year or 10-year loan will get you a lower interest rate. 

2. Different Types of Mortgages for a First Time Home Buyer

There are plenty of options when it comes to real estate loans for first time home buyers, each come with their own advantages and disadvantages. 

  • Conventional Mortgage – As little as 3% down. These mortgages are government sponsored from Frannie Mae and Freddie Mac. You will have to pay private mortgage insurance (PMI) until you have over 20% equity in your home. 
  • FHA Loans – As little as 3.5% down. These loans are insured by the Federal Housing Administration with easier credit qualifications. These require an upfront mortgage insurance premium of 1.75% with an annual premium ranging between 0.45%-1.05%. 
  • VA Loans – Loans guaranteed by the Department of Veterans Affairs sometimes require no down payment at all. 
  • USDA Loans – Zero down payment loans for rural and suburban home buyers from the U.S. Department of Agriculture. Upfront mortgage insurance is 1% with a 0.35% annual fee paid in monthly installments. 

3. Research Different State and Local Home Buyer Programs

In addition to the federal programs mentioned above, many states states and local municipalities offer assistance programs for first time home buyers. These could include down payment assistance, closing cost assistance, tax credits and lowered interest rates. Check out this site to see if you have home buyer assistance programs in your state. 

4. Check Your Credit Score and Fix Any Inconsistencies

One of the key factors to determine loan approval and interest rate is your personal credit. If you are buying a home together, this applies to all individuals that will be on the loan. Get a co-signer if you need a credit boost. 

Check your credit using sites like credit karma or your personal banking website. Dispute any errors or fix any inconsistencies that may be impacting your credit score. Pay off any outstanding debts to improve your credit. Remember, your credit runs at the first of every month so the data may not be fully up-to-date on a credit checking site. 

5. Compare Mortgage Rates From Different Lenders

Comparing mortgage rates from different lenders can save you thousands of dollars over the course of your loan. Get at least 3 quotes from different lenders and compare rates, fees and other options before deciding. Here’s a good website to compare mortgage lenders. 

6. Get a Pre-Approval Letter

Once you’ve found a lender and have gone through pre-qualification, ask for a letter that confirms in writing the loan amount and the terms. Having a preapproval letter in hand when home buying makes you look more serious to sellers and can help you secure a home faster than other home-buying competition. 

Home Buying Tips

7. Create A List of Needs Vs. Wants

You may assume you need a yard or a garage for your first home. If you are willing to sacrifice the extra space, you may want to consider a newer construction condo that requires less maintenance and may be in a better neighborhood or offer better amenities. 

Consider the location and proximity to schools (if needed), local amenities like grocery stores, gas stations, hospitals and pharmacies as well as you commute to and from work. Look up local safety and crime reports using websites like neighborhood watchdog and local government statistics. Get an idea for the noise and traffic levels at different parts of the day. Narrowing down a list of needs vs. wants beyond the actual home buildout can help you be more narrowed in your search or can open up new options you hadn’t previously considered.

8. Budget your Closing Costs, Repairs and Improvements

It may be easy to let emotions take over and stretch your budget but remember you have to pay for closing costs, move-in expenses, maintenance and incidentals that may come up during your home ownership. Avoid getting into a bidding war and give yourself a little wiggle room by sticking to a firm budget. 

9. Pay Close Attention to the Home Inspection

Ask your pest control escrow inspector to check the crawl space, roof and attic and ask about things like mold, pests or evidence of pests. This can save you a huge headache and can give you a lot of negotiating power when it comes to closing costs. Is the seller willing to cover for any major repairs prior to closing or would they provide a credit towards closing costs as an adjustment?

10. Get Adequate Homeowners Insurance

Before closing on your new house, the lender will require you to buy homeowners insurance. Make sure you shop around and get multiple quotes for insurance rates. Compare coverage, premiums and get separate insurance for things like flooding if you live in a flood-prone area. 

If you have any questions about buying your first home, contact the team at Red Hawk Realty. We have a list of real estate services to assist as well as plenty of great homes for sale for first time home buyers.