Buying your first home is an exciting milestone. However, when you're making this important financial decision, you'll want to feel confident you have a plan in place. A solid strategy can go a long way in helping you find the home of your dreams.
Use these first time home buyer tips to help guide you through the process.
Determine your budget
You've decided you want to buy a new home — that's great! Before you get to the fun part, however, you'll want to make sure your finances are in order.
Here are a few things to consider as you get started:
- Start with your budget — You'll only want as much house as you can realistically afford. Budget for estimated costs beyond a mortgage, including, property taxes, utilities and homeowners insurance.
- Consider your down payment — Many lenders require a 20% down payment, while some lenders and government programs offer special deals for first-time homebuyers — a VA Loan is one example. If you put down less than 20% you might have to pay private mortgage insurance (PMI), which is a fee on top of your mortgage.
- Remember upfront costs — Depending on the negotiations with the seller, you might have to pay for closing costs, which are due at singing. There's also earnest money, which is money included with your offer to show the buyer you're serious. If the deal goes through, it can go toward your down payment.
Prepare your finances
Once you have a handle on your budget, you can move to the next phase of the home buying process: getting your finances in order.
- Check your credit — A great credit score means you'll have more opportunities for attractive mortgage rates, which can save you thousands of dollars over the long run.
- Pay down debts — Something else to know is your debt-to-income ratio, which is the amount of your income that goes toward your monthly debt. You can improve this number by paying down as many debts as you can before you buy.
- Avoid big purchases — Something else that can derail your mortgage application is a big purchase. If you're planning on buying something — a car, for instance — wait until after you've got your mortgage set.
Look for a mortgage lender
The next thing you want to think about is your mortgage.
Pre-qualification is a great way to get a ballpark idea of what you might be approved for and how that ties into your budget. A lot of real estate deals require a letter of pre-qualification during the process, so it's a good step to go through at the start.
From there, you can move into the pre-approval process. This is a much more detailed and in-depth look at your finances and credit report by a lender to determine a specific loan amount.
Today, there are plenty of options when it comes to finding lenders. You can look to your local bank or credit union, deal with mortgage brokers directly or look at online lenders.
Shop for a home
Now you can get to the fun part. When you start shopping for a home there are some key things you want to take into consideration:
- How long you're going to stay — Think about your future plans and how the home you're looking at fits into it. As best you can, you want these to line up.
- Home inspection — It's a good idea to hire an inspector to take a look at the home you're interested in before you buy. They can alert you to any potential problems both now and down the road.
- DIY projects — Pretty much every home will have something the new homeowners will want to change. Take a look at projects that are easier for you to do versus needing to hire a professional for additional money.
- Resale value — Also think about the long term. Are there improvements you can make to this home that will increase the resale value for when you sell?
Buying a home doesn't have to be a daunting experience. Keeps these tips for home buyers in mind as you get started. If you're organized going into it, you'll have a much better chance of finding a home that fits your needs and your budget.