Congratulations on your decision to purchase your first home. At this point you have most likely done all the research you can, but still find the experience nerve wracking. It is a big investment, especially for a first time home buyer. If you follow some simple advice, you can be assured your purchase will be a smooth transition.
1) Know Your Credit Score: This should be the first step before you talk to anyone else, but a better credit score means a better interest rate, and more money you can spend on a home purchase. It also makes it easier to become a pre-approved first time home buyer if you have a very good credit score as opposed to good. If you are not sure of your credit score, it’s best to get it evaluated and search it for any mistakes, unpaid accounts, or collection accounts. Even if you paid everything on time, mistakes and discrepancies can occur. Repairing bad credit can take time, so this step should be done months prior to seeking a mortgage.
2) Money in the Bank: Many people think you must have as much as 20% for down payment. There are many home buyers who don’t have the 20% and still purchase a home. Many loan programs allow for less than 20% down payment. The VA program for veterans require zero down payment for qualified veterans. The Federal Housing Administration, generally known as FHA has low down payment programs. This Programs requires Private Mortgage Insurance (PMI) added on. PMI is usually 1 to 2 percent of the value of your loan, which can add up after a while.
3) Fixed Rate or Adjustable Rate Mortgage (ARM): When selecting a mortgage, you’ll have the option for two types of loans, a fixed rate mortgage or an adjustable rate mortgage. A fixed rate is exactly that. Your interest rate doesn’t fluctuate with the housing market. ARMs do fluctuate, and, if the value of your home goes up, so will your interest rate. “During the economic meltdown of 2007-2009, many homeowners lost their jobs and then discovered the interest rates on their mortgages were going up. Adjustable rate mortgages can be unpredictable resulting in uncertain mortgage payments.
4) Know Your Budget: Everyone thinks about a mortgage and the interest rate, but there are lots of other expenses, as well. Home Owners Association (HOA) fees, taxes, more money for utilities and, if things break, it’s up to you to fix it. You need to figure out if you have the money to be able to afford it. First, know your budget or set a monthly budget that you will be comfortable with paying that will not put you under a difficult strain should you not be able to work for several months.
5) Scout Possible Locations and Neighborhoods: Not a geographical location, but pin down an exact neighborhood where you want to live. Tax rates and even school districts can vary from street to street, so it’s always best to see where there is a realistic place you can afford to live. It’s best to be realistic so you don’t get a big letdown.
6) Low Balling Doesn’t Always Pay Off: If you are searching for homes in the higher zone of your price range, and are consistently being out-bid, it can show a weak offer, especially if you are asking the seller to pay closing costs and contribute to the down payment. If you have been outbid on multiple properties, you should consider changing your strategy.
7) Creative Bid Strategies: Bidding doesn’t always have to be a hard number. One strategy is bidding $250K, but saying you will outbid any offer by $1,000 up to $275K. It can ensure your bid is respectable, and you will get the property you want at the lowest possible price. Another thing to consider is if you are asking the seller for closing costs, it’s best to be as close to the asking price as possible.
8) Dig Deep During a Home Inspection: Once you have made an offer and are getting the home inspected, ensure the home inspector does a thorough investigation of the home. If any issues arise from the inspection, it is a great idea to dig deeper into the problem.
9) Don’t Spend Every Dollar You Qualify For: Just because you qualified for a $350K home loan, it doesn’t mean all that has to go into the mortgage. If you’re smart and purchase a property below its value, you can have money left over for renovations or other additions to the home. You can also spend less on mortgage payments, as you were expecting $350K, but only used $300K.
10) The More Expensive House May Save You More: If you see a home that was recently renovated and upgraded, it might be worth the extra money, since it could save you money on upkeep and remodeling. A little more now could save you more in the long term, which is what a home purchase is: a long term investment.
Buying a home shouldn’t be a process you are rushed or pressured into. If you know what you want and have all the information, it can be a very rewarding purchase.
