Checklist for First Time Homebuyers
With home finance interest rates at or near an all-time low, now is a good time to make your dream of owning your own home a reality. Among millennials and generation X’ers, main reasons for wanting to buy is just to own a home of their own. However, buying your first home requires some planning and preparation, a great team of people such as a real estate agent and a mortgage lender, and hard work and discipline.
A first step to take towards buying your first home is to order a credit report from the three major reporting agencies. You should review these reports and ensure you have a good credit score. This is important because a good credit score (720 or above) leads to a better interest rate. Conversely, if your credit score is not good (720 or lower), you will either not get a good interest rate or you will not qualify for the loan. If your credit score is not good, focus on raising it. Steps to take to raise your credit score include paying off (or down) credit card debt and timely payment of bills.
A second step towards buying your first home is to have the money in the bank. Many experts say you need to have at least one-fifth (20 percent) of the home’s purchase price for a down payment. It is possible to buy a home without 20 percent down. However, one good reason to put down 20 percent when you buy a home is to avoid private mortgage insurance. PMI is around 1 to 2 percent of the loan and is divided into monthly payments. Private mortgage insurance, for example, can add $100 to your monthly payment. Depending upon how much you want to buy the home will dictate how difficult other choices may be. Having a 20 percent down payment on a home requires some other difficult choices.
A third step towards buying your first home is working within and fine tuning your budget. It is easy to say you have enough for the down payment, but this commitment is a long-term one, month after month and year after year. You need to include in your budget more than just mortgage and interest payments. How would you pay property taxes, does the purchase include a pool, will the monthly utilities increase because of a change in living space? In addition, are there homeowner’s association fees to consider? Experts suggest working your monthly budget backwards to determine a payment that will not strain your budget. It is one thing to get through the initial money outlay, but sometimes another thing to afford the monthly drain on cash that comes with owning a home.
A fourth step is to find a good real estate agent. Even if you are not ready to buy a home, advice from a good real estate agent could save you hassle and money. A close family friend can be a good real estate agent, but you may not experience satisfaction with such an arrangement. Find a professional who is experienced and ethical. This person should be familiar with your market through referrals and open houses. Also remember that a good real estate agent knows people who can get you pre-qualified for the loan.
A fifth step when buying your first home is to speak with a mortgage lender. Some lenders focus on just one type of loan while other lenders can tailor a loan to your specific needs. A common mistake is to assume that where you have your checking account will give you the best deal on a loan. Your real estate agent probably has knowledge of places that offer the best loan to fit your needs. Real estate agents are familiar with which lenders will work with you and which will not. Also, do not get a loan from a lender just because you like their website. There are other places to get a loan, and the extra effort may result in a better deal.