Being a first-time homebuyer can be exciting and scary at the same time. You are entering a whole new world and level of responsibility. Before you jump into homeownership headfirst, you should know the top tips for first-time homebuyers.
Know Your Options
Today there are numerous mortgage program options available to you. You don’t need a 20% down payment or perfect credit to get a mortgage any longer. That doesn’t mean that you can have horrible credit and no money down, but there are options.
We encourage you to talk to several lenders to find out what options are available to you. If you are a veteran, for example, you may secure 100% financing for your home. This means you don’t need a down payment at all. If you aren’t a veteran, but have decent credit, you may secure an FHA loan with just 3.5% down on the home.
You won’t know what is available to you unless you shop around and find the right lender with the right program.
Get Pre-Approved When you are Ready to Shop for a Home
It can be exciting to hear how much money a bank will give you for a home, but don’t jump the gun too soon. Your pre-approval will only be good for 60 – 90 days. If you get it too early and you don’t start shopping for a home right away, you may find that your pre-approval expires before you even start truly looking for a home.
If you don’t know how much home you can afford, you can always get a pre-qualification from a lender. While the pre-qualification isn’t an approval; it’s just an estimate of what you can afford, it can give you an idea of where you stand. This way you can wait until it’s closer to time to actually shop for the home to get your pre-approval.
Have Reserves on Hand
It can be tempting to put every dollar down on the home that you have, but that’s not the right choice. Homeownership is a big responsibility. You have not only a mortgage to pay, but maintenance and repairs to handle. If you don’t have reserves on hand, you may find yourself in financial trouble.
What will you do if the roof leaks or you need a new water heater? What happens if you have a hiccup in your income? If you don’t have money set aside, you may not be able to pay your mortgage, which puts your home at risk of foreclosure. Having reserves on hand helps alleviate these issues. Think of it like an emergency fund. Rather than putting every penny down on the home, consider keeping some of it for an emergency.
Freeze Your Financial Life After Pre-Approval
Once you get your pre-approval and you shop for a home, freeze your financial life. In other words, don’t make large purchases, don’t apply for new credit, and don’t make any of your payments late. You want your credit score, debts, income, and the amount of money in your bank account to be the same as it was when you applied for the loan.
Many first-time homebuyers don’t realize that lenders pull their credit again before the closing or that they verify their employment one more time. They assume that if they got a pre-approval that they are good to close on the loan, no matter how long it takes to find a home. This isn’t the case, though. Lenders need to know that everything in your financial life is still the same before you close on the loan.
If you go out and make large purchases, change jobs, or damage your credit score, you could end up losing your approval in the final hour. Keeping everything status quo avoids this issue.
No matter what you do, make sure you have support when buying a home. Don’t try to save a few dollars by searching for a home on your own or avoiding the need for a real estate attorney. Especially if this is your first home purchase, you need the professionals on your side. You need someone to check over everything and make sure the transaction is fair on all sides.
Buying a house is a big deal. It’s not a transaction to enter into lightly. Make sure you are prepared financially and know what you have to do to keep your approval. If you ever have questions or concerns, make sure you have a trusted professional, such as a real estate agent or even loan officer to turn to for the answers to make sure you are doing the right thing.