Buying your first home is an exciting experience. Your home will be one of your most important investments so proper preperation is key to ensure a smooth and successful transaction. Follow this simple, six step formula:
Your Credit History
The majority of first time home buyers are millennials. If you are one, you should be paying down or off your college loan debt if you have any. Also, pay off any credit card debt you've accumulated. Getting your credit in order is very important as the higher your credit score, the lower your mortgage interest rate will be. Bad credit will not allow you to qualify for a mortgage. Reach out to a mortgage lender for help and advice on getting your credit in order.
Money For a Down Payment
A steady income and savings plan are keys to a good start. Some mortgages only require five percent down, others require 20 percent down. Set a goal for what you plan to save and remember that cutting out that cup of coffee from the corner market goes a long way. Keep in mind you will also have closing costs when you purchase your first home so you'll need additional dollars. The mortgage lender you spoke to about your credit can help here to.
By now you will have identified a mortgage lender to work with. The lender will consult with you, ask you questions, answer your questions and give you a good idea what price range you can be approved for. When you're close to purchasing your home, they will pull your credit, verify your income and get you pre-approved at a specific dollar amount. They'll also provide a pre-approval letter you'll need when you place an offer on a home.
Setting Your Price Range
Your mortgage lender will tell you the price of a home you are approved for. Be sure they give you a Good Faith Estimate (GFE) so you know the monthly payment amount, the interest rate and all of the fees involved with obtaining the mortgage. Your monthly payment will include principal, interest, taxes and insurance. Decide what dollar amount you want to spend understanding it doesn't have to be for the entire amount approved for the mortgage. Some like to be conservative and have a lower house payment than they are approved for. This will allow for more pocket money to spend each month as with owning comes additional expenses. If you are one to stretch to your approval limit, you'll be compelled to stick to a very strict budget each month.
Find a Real Estate Agent
When searching for a real estate agent, decide what criteria is most important to you. Do you need guideance through the entire process? Do you want an experienced agent? Someone who works exclusively in the area or neighborhood you want to search? Ask family and friends for a referral. Look at reviews online. Explore agent matching sites such as UpNest or HomeLight. Try to find one that specializes in first time home buyers. Be sure the agent belongs to his/her local multiple listing service (MLS) where agents have access to most homes that are listed in the area.
Search For Homes
Over 95% of home buyers search for a home on the internet before they go see homes in person with a real estate agent. Realtor.com is lthe official site of the National Association of Realtors so they have a tendency to have the most updated and complete listings and data available. The agents website, the brokerage he or she works for, Zillow.com, Trulia.com and Homes.com are all sound alternatives. Ask your agent to set you up with automatic emails when homes that meet your criteria come on the market. They can do this through their local MLS. Once you find a few homes that interest you, have your agent prepare a market analysis for each of them to be sure of the home values. You don't want to pay more for a home than it's worth.
Preparing for the purchase of your first home can take some time and effort. Hopefully your preparation will reward you with the home of your dreams.