Purchasing your first home is an exciting time! You may have been dreaming about owning your home for years, and it is finally time to take the plunge. It can be tempting to immediately jump into the deep end and purchase the home you fell in love with. However, you must consider the necessary financial steps before buying your first home.
1. Save up for a Down Payment
In real estate, a down payment is the amount of cash you put towards the purchase of a home, the difference between the price of the home and what they will borrow. They vary in size and are described in percentages based on the sales price of the house.
While many states offer programs that reduce the down payment on a first-time buyer’s home, it is best to have a down payment ahead of time. The more you have saved, the better it looks to the bank. It also provides more leeway in how much you can afford. The bigger the down payment, the less the monthly payment!
However, there are several alternative options for Low Down Payments. Click below to learn more about them.
FHA Loan: 3.5% down payment minimum. In recent news, The Department of Housing and Urban Development announced the reduction of the FHA Mortgage Insurance Premium.
VA Loan: No down payment is required
Conventional Loan (with PMI): 3% minimum
Jumbo Loan: 10% down
2. Work on Your Credit Score
Your credit score is a critical consideration banks make when thinking about giving you a home loan. If you have a good credit score, you’re likely to be able to obtain the home loan you need. A poor credit score can also increase interest rates when you get approved for a loan. Start improving your score to be in good shape when you’re ready to buy.
3. Location, Location, Location!
When looking for homes, consider location one of the most critical priorities. You can continually improve a house later, but moving property is nearly impossible. Scope out the area you want to live in and keep your home search within a certain radius.
If you currently live outside the desired area, it can be a good idea to experience it at various times. What is the neighborhood like when you drive through at midnight? If you were to visit in the afternoon on a Saturday, are children playing in the street? Consider these things when determining location – what kind of neighborhood do you want to buy a home in?
4. Budgeting is Essential
Knowing how much home you can afford is critical for a search for homes in your price range. If you’re going to showings that are out of budget, you’re wasting time and getting your hopes up. Plan exactly what you need in a home and how much you can afford. If you find a home within budget but missing a few necessities, which components make it a deal breaker?
Being strict with your budget can also give you a leg up in bidding wars. You can search for homes that are below your budget, giving you some flexibility in your available funds. By expanding your search criteria to include homes that are $50K below your budget, you may find it easier to win a bidding war as you can offer a much higher price than the listed amount. It’s worth noting that homes selling above the asking price have become the new normal in recent years, and is quite common right now.
When you set your budget for a home, stick to it. It can be dangerous to make an offer on a house you can’t afford. While tempting, you must remain strict to what realistically fits your budget.
5. Financial Guidance is Key.
When it comes to buying a home, it’s important to have the right team in place to guide you through the process. A good real estate agent will work tirelessly to help you find a home that meets your needs, while also ensuring that the transaction is completed smoothly and with as little stress as possible.
Similarly, a knowledgeable and experienced mortgage broker can make a world of difference in your home-buying experience. They can help you navigate the complicated process of securing a mortgage loan, and can often find you better rates and terms than you might be able to find on your own.
Of course, finding the right professionals to work with can be a challenge. It’s important to do your due diligence and research any potential candidates thoroughly before making a decision. Look for agents and brokers who have a proven track record of success, as well as good communication skills and a deep understanding of the local real estate market.
Remember, buying a home is a significant investment, and you want to make sure that you have the best possible team in your corner to help you make the most of it. With the right professionals on your side, you can feel confident and secure as you take this important step in your life.