10 Must Do’s for First Time Home Buyers
Think it’s about time to buy your own home? Hold that thought and ask yourself “Is it really time for me to buy a home?”
How to Know If You Are Ready to Buy a Home? Don’t just jump on the house hunting yet until you know you are ready for all the financial responsibility that comes along when you sign up for homeownership. Owning a home is a good investment but it can also be a financial pitfall if you just rush into it without further educating yourself. Lots of people find themselves in financial mess after buying a house because they didn’t really weigh in the financial responsibility of owning a house.
If you are confident that you are ready to buy a home, then here are the 10 must do’s for you to make sure you enter into the housing market fully armed and ready.
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1. Save money
If you are financing a home, then you’ll need to put down quite a big chunk of money on down payment. (5% to 20% of the home’s price). Here’s a really simple but good advice on how to save for down payment on your first home – save as early as you can. The earlier you start saving money for your down payment and other costs of homeownership like closing costs and insurance the better. If you want to avoid paying for a PMI or Private Mortgage Insurance, you need to save up 20% of the home’s value. You can put yourself in a better position financially if you stash money for your home fund even if you don’t have a plan of buying a home in the foreseeable future.
2. Know how much you can afford
As a first time home buyer, it is really important for you to know how much home you can afford realistically before you go house hunting. It is easy to fall in love with a house and then realize in the end that you cannot afford it. If you buy a home within your means, you are saving yourself from financial ruin.
3. Build your emergency fund
It’s easy to forget that your living expenses will surely not be the same as when you are renting – there will be larger utility bills, HOA, new furniture to add to your monthly bills. In addition to other events that are not within your control like a family member getting sick or your car breaking down, these will surely cause a major setback to your finances if you are not financially prepared. You have to make sure that you build your emergency fund for several months at least. This way you can be sure you are prepared for “extra expenses” that will come along.
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4. Get your credit score in good shape
Your credit plays a big role in determining whether you’re fit for a loan and how much interest rate you’ll get, so as much as possible you have to get your credit score in good shape. The higher your credit score is the better because you can get the best interest rates which can save you money down the road. A score of 760 and above is ideal for getting the best rates. Nevertheless, a minimum score of 620 can still qualify you for FHA, VA and USDA loan. If you want to improve your current score, you can do it by following these tips.
5. Know what the best type of mortgage is for you
If you are financing, it is important to know the best type of mortgage that will meet your needs. It’s like house hunting, when you look for homes you try to find the best that meets your home criteria. There are many types of mortgages and also many mortgage companies that offer different rates. In choosing the best type of loan consider the interest rate, where you live, how long do you plan to live in your next home, and other variables. Also, for first time home buyers like yourself, look for mortgage programs that give competitive interest rates for first time home buyers.
6. Get pre-approved
In today’s competitive market, it’s always best to be prepared before you go house hunting. A pre-approval can give you a leg up in the home buying process because it means the lender has determined that you are a suitable candidate for a mortgage. The lender has checked your credit history, your income, tax returns, and whether you have funds for a down payment and closing costs. Getting a pre-approval can also speed up the underwriting and mortgage approval process.
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7. Hire a real estate agent
Buying a home is a complex matter, especially if you are buying a home for the first time. Surely you can do this on your own but there are benefits of working with a real estate agent that can make your home buying experience more smoothly and less stressful. A real estate agent can give you valuable insights about the home buying process. He or she can have access to every home that’s on the market including those that are not publicly listed; has knowledge of neighborhoods; can negotiate with the seller on your behalf; do all the paperwork needed to close your home; and last but not the least, you don’t need to pay for the service.
8. Get a second or third opinion
The truth is, most of us buy a home based on emotion and can be sometimes be blinded by “love” that we may overlook things that may not be quite right. Being blinded by emotion may cause you to regret your decision down the road if you have not caught it in time. Getting a second or third opinion is just important so you won’t be blinded by “love.” A family or a friend can tell you problems they see that you may not see. Their objective opinion can save you expensive mistakes.
9. Make sure you get that mortgage approval
Finding the right home and applying for a mortgage only takes you half way of the home-buying process. There’s still the mortgage process itself that is also crucial. Mortgage approval takes time, about 30-45 days, and a lot could happen in that time span so you have to make sure that nothing you do can jeopardize your mortgage approval. Here are things that you should be aware of during the mortgage process.
10. Manage your finances after you close
Your new home will surely bring in a whole new set of expenses you don’t worry about when you were just renting – new furniture, maybe some update here and there – that you’ll need to establish a new budget for your home. You don’t really have to tackle them all at once, take some time to figure out what your new budget might look like and what you actually need for your new home. Your credit cards could likely keep your new home teeming with new furniture and the latest appliances, but running up on significant debt that can cause a major set back to your finances.