Tips for First Time Homebuyers

Buying a home for the first time can be exciting, frightening and even a little overwhelming—especially if you are not familiar with how to start the homebuying process. It is easy to get caught up in the whirlwind of decisions that come with buying a home like choosing homes to see, determining a budget, and finding an agent.  Plus, there’s buyer’s remorse or fear of making a mistake to contend with. Since purchasing a home is such a life-changing decision, it is important to be knowledgeable of these very helpful first-time homebuyer tips to get you through the journey. GROWTH by NCRC has helpful advice for first-time buyers below to put you more at ease.

First Time Homebuyer Tips:

Start saving early

• The type of mortgage and lender you choose will determine your down payment requirement. Some conventional loans aimed at first-time homebuyers with excellent credit allow as little as 3% down. But even a small down payment can be a challenge to save. For example, a 3% down payment on a $300,00 home is $9,000. Using a down payment calculator to determine your ultimate goal is typically the best option for saving.  Then put as much money as possible into your savings each month to reach your goal.
• Closing costs are fees and expenses you must pay when finalizing your mortgage. They usually range from 2% to 5% of your loan amount and include not only financing costs but pre-paids like insurance and taxes.  Asking the seller to pay a portion of your closing costs can save you a few extra dollars out of pocket.
• After purchasing your home, you also will need some extra money set aside for things like immediate home repairs, upgrades, and furnishings.

Explore special financing programs. If you qualify as a first-time homebuyer, you may have access to state programs, tax breaks, and an FHA loan. According to the S. Department of Housing and Urban Development (HUD) website, a first-time homebuyer is anyone who meets the following criteria:

•  An individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This includes a spouse (if either meets the above criteria, they are considered a first-time home buyer).
• A single parent who has only owned with a former spouse while married.
• An individual who is a displaced homemaker and has only owned with a spouse.
• An individual who has only owned a principal residence not permanently affixed to a permanent foundation per applicable regulations.
• An individual who has only owned a property that was not in compliance with state, local, or model building codes and which cannot be brought into compliance for less than the cost of constructing a permanent structure.

If you qualify as a first-time homebuyer, you also can benefit from several assistance programs, including down payment assistance, loans, and grants.  There are also a host of other programs for first responders, teachers, and medical workers that include help with closing costs, rebates, and down payment assistance.  Some cities and municipalities also offer tax abatement programs that will reduce monthly payments.

Determine how much you can afford

It’s important to know how much you can spend on a house before looking. You will need to factor in things such as income, debt, down payment, credit score, and the cost of living in the area where you choose to purchase.  Our mortgage calculator can help.

Check, strengthen and maintain your credit

Your credit score determines whether you qualify for a mortgage and affects the interest rate that lenders will offer you. When applying for mortgage preapproval, lenders pull a credit report.  They typically do it again thirty days prior to closing on your home and loan to be sure nothing has changed.  Ways you can strengthen your credit score:

• Obtain free copies of your credit reports from credit bureaus such as Experian, Equifax, and TransUnion. When checking your reports, look for errors that may hurt your score and dispute them. You can pull them free one time per year without a hit to your score.  Go to https://www.freecreditreport.com/ to check your score.
• Pay ALL your bills on time and keep your credit card balances as low as possible. Try making more than the minimum payment on credit cards as well.  Lenders are looking for behavioral patterns that show you are consistent and can reliable with making future payments
• Keep your current credit cards open. Closing a card decreases the available credit you use and can lower your credit score.
• Use a credit monitoring program to avoid fraudulent or spot unusual activity that can negatively impact your score.

Understand the different loan options

There are multiple types of loan programs. The mortgage option you choose determines the amount of your down payment and what costs you’ll pay at close and in your monthly payment. Some popular options are listed below:

Conventional loans:

This is the most common type of home loan. You can purchase a home with as little as 3% down.  Note that less than 20% down may mean paying monthly private mortgage insurance or a higher interest rate.

FHA loans:

Allow you to purchase a home with less strict financial and credit score requirements. With an FHA loan, you can put a 3.5% down payment and have a credit score as low as 580.

USDA loans:

For people who want to purchase a home in a qualified suburban or rural area. You can get a USDA loan with 0% down but are subject to household income restrictions.

VA loans:

A loan exclusively for veterans and members of the military and qualified spouses. With a VA loan, you can purchase a home with 0% down if you qualify.

There are also options for mortgage terms. Many home buyers opt for a 30-year fixed-rate mortgage, which is paid off in 30 years and has an interest rate that remains the same during the life of the loan. A 15-year loan usually has a lower interest rate compared to the 30-year mortgage but would make your monthly payments larger.

Get a preapproval letter

A mortgage preapproval is a lender’s offer to loan you an amount under specific terms. Preapproval letters show real estate agents and home sellers that you are serious about buying a home and can give you a competitive edge over home buyers that don’t have a preapproval letter. You should apply for a preapproval letter when you’re ready to start shopping for a home. The lender will pull your credit verify your income, debt, and assets. Applying for a preapproval from multiple lenders shouldn’t hurt your credit score as long as you’re applying within a limited time frame, typically within 30 days.

Work with a real estate agent

Choose a real estate agent carefully. A good agent will protect your interests and be your representative during the buying process.  They will search the market for homes that meet your needs and must-haves, your budget, and will also guide you through the negotiating and closing processes.

Benefits of using an agent:

• Showing you properties that fit your needs and budget
• Attending showings with you to learn more about your priorities as a homeowner
• Helping you decide how much to offer for a property
• Submitting an offer letter on your behalf
• Helping you negotiate with the seller or the seller’s agent after you submit an offer
• Attending the inspection and recommending remedies
• Attending the closing with you to make sure that everything is in order with your sale (rocketmortgage.com)

Hire an inspector

It’s always best to hire a professional inspector before you buy a home. An inspector will point out specific problems or defects with your home and will supply a written report. The results from the inspection can be used to request repairs or concessions from the seller. An appraisal, which is required by your lender differs from an inspection. An appraiser only gives you and the lender an opinion of how much your home is worth based on comparable properties.

Stick to your budget

Your lender may offer to loan you more than what you can afford, or you may feel pressured to spend above your budget to beat another buyer’s offer. Its best to set a price range based on your budget and stick to it. Looking at homes below your price limit will help give you wiggle room for bidding in a competitive market.

Save physical copies of your paperwork

Keeping track of your paperwork with physical copies is very important.  Cloud-based storage is a great choice for saving documents, but paper files come in handy. Save closing disclosure and other documents in a locked and fireproof file cabinet for extra protection.

For additional tips and advice, check out our YouTube video with top-producing New Jersey Realtor®, Felicia Hanckerson.  Happy Buying!

Works Cited

Marquand, Barbara. “14 Tips for First-Time Home Buyers.” NerdWallet, 23 Apr. 2021, www.nerdwallet.com/article/mortgages/tips-for-first-time-home-buyers.

“13 Tips For First-Time Home Buyers.” Rocket Mortgage, www.rocketmortgage.com/learn/first-time-home-buyer-tips.