Smart Tips for First Time Homebuyers

As a first time homebuyer, it’s important to take the time to research and plan every step of the home buying process. From confirming that you are financially ready down to making the final offer, here are a few things to keep in mind that may help you along the way.

1. Get (and Stay) Organized

You’ll need to gather your financial information to get started. Collect pay stubs, bank statements, W-2s, and any other financial information for the past two years. This will allow for your financial statements to be readily available when you meet with your lending officer. It’s also a good idea to organize your statements monthly to help stay organized in the years to come.

2. Check Your Credit Score

…and get in the habit of doing so at least once a year. In case you didn’t know, you can access your credit report for free, once a year, through annualcreditreport.com. Your credit report can make or break the final decision on your home loan so be aware and be sure to fix any errors that may appear. You can also receive your FICO score, which will cost you a small fee.

3. Figure Out What You Can Afford

You can start by tracking your daily expenses over the course of a month to see exactly where and how much money you’re spending. Also be sure to track your savings since you may want to start sacrificing the daily stops to your local coffee shop and transfer those expenses into your savings to add a little more cushion to your down payment ability.

4. Use a Mortgage Calculator

Many can be found online and can tell you exactly what your expenses will be. They may not always account for every single penny, but they give you a pretty good idea of what your monthly payment will be. Keep in mind, depending on your home market, your mortgage payment will increase once your taxes and insurance escrow are added.

5. Be Realistic

Before you sign on the dotted line, be sure that you can easily make the monthly mortgage payments. Chances are that if you’re losing sleep about being able to pay your mortgage on top of your current expenses, you’ll need to reconsider the amount you want to borrow.

6. Your Sales Associate Can Help with Lenders

Whether you’re building a home or buying a resale, your sales associate may have existing relationships with preferred lenders to help get you pre-approved for a mortgage. If not, you might want to check your bank or credit union.

7. Do Your Research

We all have our dream homes, but in most cases, our first home may not be the dream home you pictured. When you’re putting together your home wish list, focus less on the marble countertops and extravagant chandeliers and focus more on functionality. Do you need lots of storage? Perhaps walk-in closets and a two car garage should be on your list. Start your home search by researching homes recently sold and homes currently on the market.

8. Get Pre-Approved

You can compare several loans before making the final decision. Be sure to compare and figure out pros and cons. Keep in mind that you should ask about up-front costs as some lenders will charge for pre-approval. Once approved, you’ll receive a letter from the bank explaining how much they have decided to lend you.

9. Not Approved? Look into FHA Loans

The Federal Housing Administration has a lending program specifically for first-time home buyers and only requires 3% to 3.5% for the down payment. Banks recommend spending up to 28% of your gross monthly income on your mortgage, taxes and homeowners’ insurance premium. If you move forward with an FHA loan, you can go even higher to 50% percent of your gross monthly income but keep in mind that just because you are eligible for a larger loan; it’s not necessarily a smart financial move to take it. Remember that 50% will have a larger effect on your income especially if you are enrolled in a 401k savings plan.

10. Don’t Rush

…but keep in mind that you are on a deadline. Typically, pre-approvals are only good for 60 to 90 days. If you don’t find your home within that period, you may need to re-qualify with your lender. While you shouldn’t settle or buy the first home you see, doing some research and only seeing the homes that are in your budget can save a lot of time and make room for more visits to homes that will be a better fit for you and your family.

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