A first time home buyer might refer to someone who has never purchased a home before, but in some contexts, the definition is actually much broader. Homebuyers who don’t have a substantial down payment could be eligible for down payment assistance through first-time homebuyer grants and loan programs, even if it isn’t their actual first time buying a home. To qualify for many of these programs, buyers must simply not have owned a home for at least the previous three years.
Being a first-time homebuyer can feel intimidating and, quite frankly, like you have no idea what you’re doing!
Below we have put together 7 of the smartest moves you can make as a first time buyer. Following these steps will give you a better understanding of the buying process and move you steadily toward your dream of homeownership.
Grow Your Savings
A common mortgage misunderstanding is that 20% is required for a down payment, but it’s not a deal-breaker if you don’t have that saved. Make sure to speak with a mortgage lender to help you determine the best down payment goal for you, which could be as little as 3%. Achieving the highest down payment will require regular or automated saving and possibly cutting back unnecessary expenses.
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Know Your Credit Score
If your credit score is around 700 or better, you shouldn’t have a problem buying a home. With a higher credit score, you can get favorable loan terms that will save you lots of money over the life of your mortgage. Note, you would still get a loan with a score as low as 500 (for an FHA loan) or 620 (for a conventional loan). Generally, a score of 760 or higher is enough to qualify you for the lowest rates and most favorable terms. Start monitoring how your score is changing and to stay on top of any errors or credit inquiries that can lower your score.
Get Quotes From Lenders
Getting a rate quote is a good starting point for comparing loan offers. Because mortgage rates change regularly and can vary considerably from lender to lender, aim to get rate quotes from at least three lenders. In general, you’ll want to pay the lowest interest rate because that means less money spent monthly and overall.
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Being pre-approved means you’ve got buying power. Technically, it means that a mortgage company has agreed to lend you a certain amount of money based on specific terms. The preapproval letter typically spells out how much you’re qualified to borrow, what loan program you’re using and the expected down payment you can make.
Find a Trusted Real Estate Agent
It’s important to work with an agent who has your best interest in mind and who has experience representing buyers. A good agent will listen to your needs, know real estate like the back of their hand, and be a great communicator. One of the best ways to find a good agent is to ask your friends and family for referrals. When meeting with an agent in person, these are some great things to find out:
- Do they communicate with their clients throughout the buying process?
- How many homes have they closed the past year?
- What are the terms of their buyer’s agency agreement (if they require one)?
Shop for Your Home
Talk to your agent about your budget and top requirements so that you don’t waste time looking at homes that don’t meet your needs. If possible, visit homes in person, and avoid buying a home sight-unseen, even if it seems like the perfect fit based on an online description and photos.
During showings, tour the home and the neighborhood. How would you feel if you discovered the neighborhood was too congested with traffic, is next to a loud airport or the nearby schools are under-performing?
Make an Offer on a Home
Once you’ve found a home that meets your requirements, get ready to make an offer. With your agent’s assistance, draft an offer letter stating your desired purchase price and any contingencies you’d like to include, such as a home inspection. You should also include your earnest deposit, which is typically 1% to 2% of the total purchase price. Sellers consider it a good-faith measure that further demonstrates you’re a serious buyer. If your offer is accepted, the earnest deposit will be applied to your down payment.
Being a first time home buyer requires careful analysis of your finances, the housing market, and the lending options available. When you decide to buy a home, know that it doesn’t have to be a stressful process. With knowledge and numbers on your side, you’ll be an informed buyer and inside your dream home in no time.
Following the steps above will position you for a smooth process, and we hope you found them helpful!