Buying a home represents an exciting step in many people’s lives, but it’s intimidating trying to learn all the ins and outs of the home-buying process. If you’re looking for help with the process, we’ve got your back. Below, you’ll find tips for first-time home buyers that will help you navigate mortgages, house shopping, and first-time home buyer mistakes to avoid if possible.
Table of Contents
Mortgage tips for first-time home buyers
Start saving for a down payment as early as possible
A 20% down payment is common but there are some lenders that allow you to put as little as 3% down for your home. If you decide to put less than 20% down, you could end up paying for mortgage insurance that ultimately makes your home loan more expensive over time.
It’s a good idea to use a down payment calculator to figure out how much you should save. To reach your savings goal, you can start by setting aside tax refunds or work bonuses. Or, you can rely on an automatic savings plan, as well.
2. Consider your down payment and mortgage loan
When you’re looking to purchase a home, you might be surprised by how many options you have at your disposal.
- VA home purchase loan: These are loans guaranteed by the Department of Veterans Affairs and sometimes, you don’t even need a down payment at all.
- Traditional mortgage: These follow the government-set standards set by Fannie Mae and Freddie Mac, as require as small as a 3% down payment.
- FHA loan: Loans insured by the FHA also have a low minimum down payment option of 3.5%.
It’s important to remember that a higher initial down payment will mean lower monthly mortgage payments. For the small monthly mortgage bill, consider a 30-year fixed mortgage. If you choose a 20-year or 15-year fixed loan, you may be able to qualify for a lower mortgage interest rate.
3. Figure out how much you can afford
If you choose a house out of your budget range, you can put yourself at risk for defaulting on your home loan payments. In turn, you could lose your home as a result. To avoid that possibility, make sure you actually take into account what house price you can afford. You’ll need to think about additional expenses on top of your mortgage payments, too – like property taxes and maintenance costs.
4. Watch how much money you spend
When you’re applying for a home loan, lenders will evaluate your creditworthiness to determine your overall risk as a borrower. The lender will use this metric to figure out your interest rate and loan terms.
This is why it’s crucial that you check your credit before you even start daydreaming about buying a home. It’s important to make sure your credit is up to snuff and that you dispute any potential errors that could unnecessarily drag down your credit score.
To keep your score from dropping after you apply for a mortgage, avoid opening new lines of credit and avoid going on any shopping sprees that could make you appear irresponsible to lenders.
5. Shop and compare mortgage rates
When you’re applying for a home loan, it’s important to get a rate quote from more than a single lender. Shopping and comparing can save you $3,500 over the first five years of the loan. It’s a good idea to get at least three different rates to get an idea of what mortgages you can qualify for.
When you’re comparing quotes, you can use this time to ask if any of the lenders let you buy discount points so you can prepay interest up front. As a result, you can get a lower interest rate on your loan.
Conclusion: Finding your dream home
For many adults, a home represents a lifetime goal. But, buying a home involves robust savings, a mortgage, and a large down payment. It can be overwhelming navigating the home-buying process all by yourself, especially when you’re wading into all the local and county regulations that can differ from the state’s rules. However, if you follow the tips in this guide, you can set yourself up for total success. So, with this article in hand, get out there and find your dream home!
