If you’re a first-time home buyer or even an experienced home buyer, you’ll want to keep the following key tips in mind.
- Start saving your money early: The money you need when purchasing a home doesn’t end with getting a mortgage. When calculating how much you’ll need to purchase your home, consider both one-time expenses as well as new, recurring bills. Below is a list of the main upfront costs you’ll need to consider when saving to purchase a home:
- Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender you’re working with. Some conventional loans aimed at first-time home buyers with great credit require a down payment of as little as 3% of the home’s purchase price. But even a small down payment can be challenging to save. For example, a 3% down payment on a $300,000 home is $9,000. It is helpful to use a down payment calculator to decide on a goal and then set up automatic transfers from your checking account to a savings account to help you meet your goal.
- Closing costs: Closing costs are the fees and expenses you pay to finalize your mortgage and close on the purchase of your new home. They typically range from 2% to 6% of the loan amount. Your closing costs on a $300,000 loan could be between $6,000 and $18,000. That’s additional money you’d have to pay, ON TOP OF your down payment. In a buyer’s market, you can sometimes ask the seller to pay a portion of your closing costs.
- Moving/Move-in expenses: Remember to budget for moving costs, which typically run up to $2,500 for most local moves. If you’re moving out of state or across the country, expect to pay more. You’ll also need some cash after the home purchase, so set some money aside for immediate home repairs, upgrades, and furnishings.
- Decide how much home you can afford: Figure out how much you can safely spend on a house before starting to shop. You can do this by determining how much of a monthly payment you can afford, then talk to your loan officer to determine, based on the rates, how much house you can afford.
- Check and polish your credit: Before applying for a mortgage loan, check your credit report and score. If your credit score needs improvement, work on boosting it before applying for a loan. Your loan officer should be able to provide you with tips on what to do (and what not to do) to help increase your score.
- Explore your mortgage options: There are several types of mortgages available, and several are designed specifically for first-time home buyers. Take a look at some of the more popular options below, then ask your lender what loan they think would be right for you and your situation:
- Conventional loans: These are not backed by the government but are instead offered by private lenders. They typically require higher credit scores than government-backed loans but may have lower interest rates.
- FHA loans: These are backed by the Federal Housing Administration (FHA) and require lower down payments than conventional loans.
- VA loans: These are available only to veterans and their spouses who meet certain eligibility requirements.
- Look into first-time home buyer assistance programs: Many states offer programs that are designed to help first-time home buyers with the payment of their down payment and/or closing costs. There are specific qualifications you must meet in order to be approved for a home buyer assistance program, but doing a little research could save you hundreds if not thousands of dollars.
- Compare mortgage rates and fees: You don’t have to go with the first lender you talk to. Shop around for the best mortgage rates and fees and the best lender program that fits your specific needs.
- Get a pre-approval letter: A pre-approval letter from a lender shows that you’re serious about buying a home and gives sellers the peace of mind that you are likely to be approved for a loan. It is also a clear indication of how much you can afford to spend on a house. This will help your Realtor and you when searching for homes.
- Work with a Realtor: Don’t do it alone. Realtors are a vital part of the home purchase process. They not only help with the home search and are able to get you scheduled for in-person tours of all the homes you’re interested in, but they are also skilled negotiators to help you through the process of getting under contract. Plus, Realtors who are in the know can get you the assistance you need when it comes to hiring a licensed home inspector, or other contractors necessary to your transaction. Not to mention the fact that a licensed Realtor knows and understands the required documents and deadlines necessary for a successful transaction.
- Be patient: Buying a house is a big decision that requires careful consideration. It isn’t something to rush into. Take your time, tour lots of properties, and when you find the right one, you’ll know it. Your Realtor will be there every step of the way to answer all of your questions and get you to the finish line.
If you’re looking to purchase a home in the North Alabama area, and you don’t have a licensed Realtor you’re working with, I’d love to help. In the meantime, I hope these tips help! Let me know if there’s anything else I can do for you.
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