Buying your first home can be a very exciting time in life. Homeownership is a big milestone and it can add a lot of benefits to your financial life. People choose to buy a home for a variety of reasons. Some are looking for an investment opportunity while others are simply looking for a place to settle down with a family.
No matter your reason for buying a home, there are quite a few things to consider. There are many steps in the process of buying a home, and you’ll want to be prepared to handle everything that comes along. Here are 4 quick tips for first-time homebuyers.
1. Get Pre-Approved
One of the biggest rookie mistakes you can make when buying a home for the first time is to skip the pre-approval. You might be excited to dive right into finding your new home, but you may run into some speed bumps without a preapproval.
A preapproval letter from your lender outlines exactly how much of a mortgage you qualify for based on the financial information you provided to your lender (which might include bank statements, credit score, and W-2s).
2. Have Your Credit Score in Order
Hopefully, you’ve had some time to prepare your credit prior to searching for a new home. With a good credit score, you can get preapproved for a home loan and embark on your new home search.
That said, this is not a good time to start opening new lines of credit. One of the things the lender does when you apply for a mortgage pre-approval is to pull your credit report. This happens again right before you close on your new home.
Unfortunately, that second credit pull can spell disaster (and potentially cause you to lose your new home) if you have opened a new line of credit. If the lender sees that your credit balance has increased, your final approval could be at risk.
3. Have a Down Payment Ready
One of the biggest challenges for first-time homebuyers is being able to save enough for a down payment. Thankfully, the Federal Housing Administration (FHA) has programs to help first-time homebuyers purchase their first home.
If you qualify as a first-time homebuyer, you could be able to access state programs, tax breaks, and even an FHA loan.
4. Factor in Closing Costs
Another big item that gets overlooked is closing costs. While the down payment will make up the biggest chunk of money you need, you should also plan on needing an additional 2%-5% of your total loan costs in the form of closing costs.
These costs go to your lender since they arrange for many of the loan services, including:
- Appraisal fees
- Escrow fees
- Discount points
- Title insurance costs
Some first-time buyers may qualify for government-backed grants or loans that help with closing costs.
Congratulations! You’re well on your way to buying and closing on your first home. Follow the guidance above to ensure a smooth journey from start to finish