Buying a home for the first time can be a truly rewarding investment. However, since you will probably be making your biggest purchase ever, you need to be guided to avoid common mistakes, to save money and go through the entire process without stress. Here are the tips you need to buy your first home and get affordable financing for it.
Start planning for your down payment now
It takes a lot of discipline to put together a large cash deposit, but this is one of the most important steps you can take towards buying a home with a low-interest mortgage rate. Ideally, you should strive to save at least 20 percent of the loan you are going to borrow for your home. If you can’t save that amount of money, don’t despair. There are lenders that will grant first-time buyers loans with as little as 3 percent down payment as long as you have a good credit score.
However, you will have to pay a higher interest rate along with lenders mortgage insurance (also known as private mortgage insurance or PMI) if you make a smaller down payment. To know the exact amount of money you need to save for your initial payment, you can utilize available online tools that will aid you in your calculation. You can build up your savings quickly by putting aside every additional income you receive including work bonuses and tax refunds. You may also set up an automatic savings plan with a separate bank account for this purpose.
Choose an affordable home
Before you go out and start looking at homes with your real estate agent, you need to determine the price range for the home you can buy. This is not a trivial task. There are various factors to consider including, your monthly disposable income, the amount of savings you have, your current debt profile and the amount your lender is ready to offer you. To make this task easier, you can call a few reputable mortgage lenders or use an online calculator to know the price of the home you can safely buy.
Monitor your credit history
Your credit score is one of the most important things considered by lenders. They examine your credit history to determine the amount they can approve and the interest rate. You should look into obtaining a free credit report and study it carefully before you approach any lender for a home loan. If you notice any errors in the report, raise a dispute against it so you can improve your credit score. Then take steps to improve your credit by making all credit card payments promptly. Also, you must avoid opening any new credit accounts or personal loans, until you close the buying process.
Compare different loan interest rates
A common mistake among first time home buyers is getting a loan rate quote from a single lender. It’s better to compare the mortgage rates offered by three or more loan providers. This could save you thousands of dollars within the first few years of your loan. As you do your comparison, ask each lender whether they will offer you flexible loan terms. A flexible term means that you will have the option of repaying your interest or capital ahead of schedule to get a lower interest rate.
Obtain a pre-approval letter
You can ask your lender to pre-qualify you for your mortgage loan. But once you’ve started the home buying process, you should get pre-approved. A loan pre-approval letter will contain the amount that the lender is willing to offer you based on your current income and credit history. When you find your ideal home, you can present your pre-approval letter to your seller. This makes you look better prepared than other buyers who don’t have one and it gives you an advantage over them.
Choose the location and then the house
If you buy the right house but it’s located in the wrong neighborhood, you will not enjoy living there. So decide on the neighborhood first before you pick a house. How can you know if you will enjoy living in the said neighborhood? Here are some recommended steps to find a suitable neighborhood:
*, Do a quick check on the school district, whether you have school-age kids or not.
* Check for crime statistics and local safety reports.
* Drive through the streets in the area on weekdays and weekends at different times of the day. Observe the activities, noise and traffic levels.
* Find out the location of the closest shopping center, pharmacy, hospital, recreation center and any other amenities you care about.
Don’t deviate from your budget
Focus on homes whose value is lower than your pre-approved amount. Remember that this amount is the maximum financing you will get and it does not cover the cost of unexpected repairs. Also, you must avoid making an offer that is higher than your budget if you are bidding in a competitive market. Always remain within budgetary limits so you won’t end up with a very high monthly mortgage payment.
You can make the process of buying your first home an exciting adventure by following these tips. With the help of a reputable buying agent and supportive loan provider, you should be able to complete the process and move into your dream home with minimal stress.