As life naturally progresses you encounter new and sometimes terrifying milestones.
Buying your first home can be one of those mile markers.
You feel the excitement as you dream about the house, the yard, the future kids you will fill the house with, the dog, and the get-togethers you will host.
However, there is the other side that comes with considering such a huge responsibility.
You are clueless on where to start.
Where do you get a loan? Do you need a downpayment? How much can you even afford? How do you even figure that out?
Buying your first home doesn’t have to be a stressful journey. You just need to educate yourself.
21 Things You Need To Know About First Time Homeowner Loans
1. Find Out What You Can Afford
Your first step on your journey to homeownership needs to be determining what you can afford. Gather all your bills and paystubs. Figure out how much money you can put towards a house payment.
2. Get Documents Ready
When you apply for a mortgage you will need to gather a lot of documents. Typically, each applicant will need 30 days worth of pay stubs, W-2’s for the past 2 years, and 2 years of tax returns. The required paperwork may vary depending on the lender so be prepared to provide more than this.
3. What Is Your Credit Score?
The type of loan and the amount you qualify for will hinge on your credit score. Figure out if you are in good standing or if you will need to take steps to repair your credit before applying for a mortgage.
4. Don’t Use New Credit
If you are looking to settle into home ownership using more credit during the loan process can really mess things up. Don’t run to the furniture store and buy a new living and dining room set on credit for your new home. Your lender may see this as a major red flag.
5. Research Mortage Options
Not all mortgages are created equal. You will have options for how long you will carry your mortgage from 15 years to 30 years. You will also have to decide if a fixed mortgage is best or if you would like to have balloon payments.
6. Compare Rates
Rates are another area in which mortgages can differ. Be sure you are mindful of the rate you end up with. It may only make a little difference in your monthly payment but after years of payments, you will begin to see thousands of dollars difference between rates.
7. Paying Points
Paying points, also known as mortgage points or discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments. One point costs 1 percent of your mortgage amount (or $1,000 for every $100,000). Ask if you have this option when researching mortgage companies.
8. Get Preapproval Letter
When you are trying to buy a home you will have to face many decisions. You will look at a lot of houses. And you will hopefully find a house you want to make your home. So before you start, get the preapproval letter. You don’t want to lose the house you have your heart set on by finding out your finances aren’t entirely set up to begin the buying process.
9. A Downpayment May Be Required
Once you determine what you can afford, calculate the amount of a decent downpayment. Typically, a 20% downpayment is asked for. However, you may find you only need as little as 3%. Keep in mind that your downpayment will offset your monthly mortgage cost so a larger downpayment can be helpful.
10. Downpayment Assistance
If you are ready for homeownership but you don’t have the resources to make a down payment you can seek the assistance of downpayment programs. There are many programs worth looking into. Don’t give up on your dreams of owning a home just because you don’t have a downpayment on hand at the moment.
11. Find The Right Real Estate Agent
This is an area I can speak from experience in. I made the mistake of using the seller’s agent as my buying agent. A lot of things were not disclosed before purchase. The things I didn’t know about until after buying the house would have been deal breakers for me. So be sure you find your own buyer’s agent. You want someone in your corner.
12. Stay On Budget
Set a budget and stick to it. You don’t want to find yourself spending all your earnings on your housing. The cost of housing should not exceed around 35% of your monthly income.
13. Consider Neighborhood
Location can make or break a dream home so don’t forget to take the neighborhood into consideration. You don’t want to find that your house is located too far from work or family.
14. Buy For Tomorrow
Don’t just look at a house for the situation you are currently in. Consider the future situations you want to find yourself in. If you want to have children a home with only two bedrooms may not work out long term. You may also want to consider the yard if you are looking to start a garden or own pets in the future.
15. Maximize On The Open House
Use the time of the open house to really explore the home and yard. You can also ask the agent working the open house any questions you may not have had answered.
16. Understand Limits Of Home Inspection
When you get an inspection done on your home know that not every flaw can be exposed. This is simply due to the fact that the walls can hide some festering problems. Don’t let this deter you from homeownership. Just keep in mind that you may face some repairs. One way to be prepared is to keep an emergency fund for repairs that pop up.
17. Make A Strong Offer
Don’t make your first impression to the seller by making an offer that is well below the asking price. This could be offensive and deter them from even countering your offer. You may just get a straight rejection to your offer. This will lower your chances for a healthy negotiation of options.
Just because you are buying doesn’t mean you don’t have the right to ask for things in the process. Negotiation is an area that can benefit from the home inspection. If you find the roof needs a little TLC you can mention the needed repairs in your offer and make a lower offer more logical.
19. Don’t Forget Homeowner’s Insurance
Before you sign your loan papers have a good idea of adequate home insurance for your new home. You will also need to decide if you are going to include the insurance premium on your mortgage payment or if you are going to be paying it separately.
20. Consider Total Monthly Housing Costs
When you buy a home your mortgage payment will not be the only expense you have to maintain your living arrangement. Don’t forget the costs of insurance, utilities, and any HOA fees you might incur.
21. Don’t Forget Closing Costs
Going through the home buying process can get you thinking about a lot of different things. In the mix of changes don’t forget the big expense of closing costs. You may be able to offset some of your responsibility of closing costs by negotiating with the seller to cover some of the closing costs.
In order to set yourself up for a great home buying experience do a lot of the research and tedious work upfront.
Know what you can afford or what you are willing to pay and get preapproved.
Also, create a list of features you would like to see in your home. With that, be realistic in your expectations.
There is no such thing as a perfect home unless you are building it from the ground up. Understand some features may be out of budget or unavailable in your desired neighborhood.
The more work you do ahead of house hunting will allow you to enjoy the looking process a lot more. You will have a clear understanding of what you need, want, and can afford.
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