You’re buying your first house! No more fighting over parking spaces, unexpected rent increases or putting up with noisy neighbors. If you’re planning to make a move this year, here are five tips that can set you on a path that leads to your very own front door.
1. Educate yourself
Take time to read up on the home buying process as well as the current housing market (buyer’s or seller’s market?) and what it might mean to your overall budget to own a home. For example, many first-time homebuyers are late to the game because they think they need a 20% down payment to buy a home. In reality, that’s not the case. While you will most likely get the best rates with a large down payment, you have several options if you don’t have that much cash on hand. There are loans that offer low down payment options, or no down payment at all, that can help you buy your first home.*
No down payment home loan options
- USDA Rural Development – This loan can help you buy a home in a rural or suburban area (must be located in a USDA eligible area - many areas qualify). Income limits to qualify vary by location and depend upon household size.
- VA (veteran) – The VA loan is a benefit available to qualified veterans, active military and select military spouses. This loan offers low rates, and lenient credit and income requirements.
Low down payment home loan options
- FHA (3.5% down) – Popular loan because of its lower down payment requirement, lower closing costs and flexible credit requirements.
- Conventional (5% down) – Good choice if you have very good credit history. Seller can pay a portion of closing costs. Private mortgage insurance required on loans with less than 20% down.
- Renovation (3.5% down) – Buy an older home in a great neighborhood and remodel it to suit your style with a renovation loan. You can buy and get the funds to remodel all with one loan.
Tip: Talk to one of our loan officers about our state assistance programs. If you are a borrower with low to moderate income, you may qualify to receive down payment and/or closing costs help.
2. Get pre-approved
House hunting without mortgage pre-approval is like taking a trip without an itinerary and your Google Map app. You might get where you're going, but you'll probably take a few unexpected detours along the way. A pre-approval letter tells sellers that your offer is real and that you have the backing of a lender. Without it, and especially in a competitive housing market, you stand a real chance of not be taken seriously.
Getting pre-approved can also save you valuable time by identifying how much you can afford so you can target your home search to your price level. Better yet, once you find your home, a pre-approval can help to speed up the closing process, since much of your financial information is already in your lender’s system.
The first step in getting pre-approved is completing the loan application provided by your lender. This will include submitting documentation of your financial history, including income, assets and debts. Wondering what paperwork you’ll need to pull together? Check out our handy document checklist that can help keep you organized.
3. Talk to a Realtor®
Home listings on websites like Homefinder and Realtor.com can be a good resource for comparing and contrasting homes in your price range and in the community you’re looking to buy, but they shouldn’t replace the services of a professional Realtor®. Remember, navigating a real estate purchase is a complicated process. An experienced professional can save you time and money as they know the ins-and-outs of negotiations, pricing, comparable home prices, and details about the neighborhood where you’re looking to live.
It’s also good to know that, as the buyer, you won’t pay any fees to the Realtor. While there are exceptions, it’s normal business practice for the seller to pay Realtor fees.
4. Improve your credit
We all have areas of our lives where we can improve. No matter how good we might be at something, practice makes us better. The same can be said for our credit scores. Unless your credit is absolutely perfect, there's almost always room for improvement. Most often, the better your FICO credit score, the lower interest rates you can get for loans.
Get yourself on the road to mortgage-ready credit with a few simple first-steps:
- Pay your bills on time – making late payments on your credit card bills and other creditors can drop your score significantly.
- Keep your credit lines below 30% of their maximums - if your credit card has a $10,000 max, keep your debt under $3,000.
- Keep an eye on your credit history - you have the right to your credit report once per year from each of the three credit bureaus. Get your report from each one in different quarters of the year and make sure no one is using your credit when they shouldn't be. Get a free copy of your credit report from annualcreditreport.com.
5. Save up cash
Buying and owning a home takes money. Even if your home loan offers 100% financing, you'll most likely have closing costs and other expenses. This can include funding your escrow account and paying inspection fees.
Likewise, if you're buying a home that's not brand new, you may find things wrong with it - an old furnace, leaky windows, dated appliances - and need some cash on-hand to take care of them. You can get ready to be a homeowner by saving money each paycheck and putting bonuses or holiday gifts away in the bank to build up your savings.
Tip: Be sure and keep a paper trail by depositing funds in your bank or credit union. Lenders need to know the source of your income; that’s why its vital to keep a paper trail of your transactions.
It’s normal to be overwhelmed when you’re buying your first home. By educating yourself about what’s expected, you’re taking the first step in responsible homeownership. But don’t feel like you have to know everything yourself. An experienced and knowledgeable loan officer can walk you through each step of the loan process, answer your questions and help you choose a loan that fits your needs and your wallet.
Learn what it takes to move from renting to owning with our new Get Mortgage Ready ebook, a step-by-step guide for first-time homebuyers.
*Down payment and terms are for informational purposes only and are not intended as an advertisement or commitment to lend. Please contact us for an exact quote and for more information on fees and terms. Not all borrowers will qualify.