Buying a home right now may be challenging which is why it’s important to stay informed, do your homework and ask the right questions. How to prepare for your first home purchase.
Instead of sitting on the sidelines and worry about the future, clearly, there’s something you can do. Preparing yourself for the process ahead of time can help make home-buying less alarming, and potentially more affordable.
Nevertheless, there are many sound reasons to buy a home right now. This guide is intended to provide you with the information you need to prepare for purchase, even if you aren’t convinced that now is the right time.
Tips How to Prepare for Your First Home Purchase
Here are 7 things you can do how to prepare for your first home purchase.
Start Saving Early for Down Payment and Other Costs
Down payment is the money that you need to pay upfront at the time of purchasing a home. Homebuyers may be required to pay for closing costs as well, which is usually costs about 1% to 4% of the loan amount. These costs include processing fees, title insurance, and underwriting fees, taxes, and credit report fees.
The other expenses include the appraisal fee and inspection fee. The total amount of money you need to put down for buying a home largely depends on the loan type you choose. Different types of mortgage loans require different down payment. Some require a minimum of 3% down payments, but some offer 100% financing. For example, FHA loans and VA loans allow no-money-down mortgages that let qualified military personnel buy homes with 0%
Determine how much house you can afford
The first thing you should do when buying a home is to make sure it’s the right time to purchase. This means figuring out how much house you can afford, and that’s what we’re going to help you determine here.
Be honest with yourself about your current finances and how you might feel over the next few years. This is a big decision and a long-term commitment, so make sure you’re ready ― house included.
Once you’ve decided it’s time to buy and you know how long you plan on staying put, you need to determine how much house you can afford. This is done by carefully considering your current financial situation, your future goals, and the down payment amount you can realistically put together.
House price calculators can show you what monthly mortgage payments will be based on a set price, but the only way to know if buying is right for you – even at that price point – is by making sure you can afford it.
Check and strengthen your credit
Your credit score is one of the first things lenders look at when deciding whether to grant you a loan. Lenders use your credit score to determine the likelihood that you will repay the loan and make on-time payments. If you have no credit history, or if you are starting over after a bankruptcy or foreclosure, your lender may ask for a cosigner or give you a secured credit card with a very high-interest rate, just in case. However, if you have been managing credit for many years and have had no negative marks on your record, your lender may offer you very favorable terms without a co-signer or secured credit account.
You can ask for a free copy of your credit report from any of the major credit reporting agencies. Review it carefully and check for discrepancies. Finally, work on improving your credit score (by paying down credit card debt), and avoid taking out large loans right before applying for a mortgage loan.
Explore Mortgage Options
A mortgage loan is a financial agreement that lets you purchase a home and borrows money from a lender, such as a bank, credit union, or mortgage company. There are different types of loans that offer benefits for different borrowers. The lender will create a contract for your home loan based on your property, down payment, credit score, and income. How to prepare for your first home purchase, to determine which type of mortgage loan is best for you, read on to explore your options.
- Conventional Loans: These loans are not insured by Government and are typically offered by mortgage companies. Some of these conventional loans are targeted for first-time homebuyers and require a down payment as low as 3%.
- FHA Loans: These loans are insured by the Federal Housing Administration (FHA) and typically require a down payment of 3.5%
- VA Loans: These loans are designed for current and veteran military members and require no down payment at all. These loans are offered by the Department of Veterans Affairs.
- USDA Loans: These loans are provided by the U.S. Department of Agriculture. These are designed for rural homebuyers and typically require no down payment and lower interest rates.
Compare Different Mortgage Rates
Choosing a lender and mortgage program can be confusing, but there are some things to keep in mind. Shopping around for a mortgage loan may save you money in the long run, and it will also help you compare costs at different institutions. You should request loan estimates from multiple lenders for all the different types of mortgages you can be qualified for. This will help you see what is available, as well as the costs of each option.
One of the best ways to keep interest rates low is by taking advantage of discount points. Discounts lower your monthly mortgage payment by reducing points. You can request a loan estimate from the lender to see if there are any discounts available and how much they’ll save you each month.
Furthermore, a mortgage preapproval is a lender’s offer to loan you a certain amount of money under specific terms. A preapproval is not a guarantee of actual financing, but the lender will present loan options that are consistent with what they’ve preapproved for you. Having a preapproval letter shows home sellers and real estate agents that you’re a serious buyer, and can give you an edge over home shoppers who haven’t taken this step yet.
If you’re ready to start shopping for a home, one of the first tasks on your to-do list should be to get a preapproval letter. In general, you’ll want to gather as much documentation as possible so that this task will go quickly and easily.
Find a Real Estate Agent
The home buying process can be a long and expensive journey. You need a real estate agent that is going to look out for you. He will answer any questions you may have along the way.
Finally, a good agent will make the process easier by providing valuable information and tips to help you find the right home. Not to mention, they will also work hard to look out for your best interests throughout the process, making sure all aspects of buying a home go smoothly.
When you find a promising agent, schedule an initial meeting to review your home-buying goals. During this meeting, the agent should provide a market analysis of your neighborhood, advice about how to stage and prepare your home for sale. The agent preliminary estimates of what your home might sell for in today’s market.
Affiliated Mortgage has a team of highly qualified real estate experts. Hence, mortgage brokers who can help you find your dream home at affordable rates. Contact us now to get started.
Contact us at (605) 718-9820 or schedule a call. We will let our mortgage experts help you with your home loan.