Acquiring a real estate property is an achievement a person can have in their lifetime. Seeing the fruits of your labor makes all your hard work worthwhile especially if principal residence.
Regardless if you are a first time homebuyer or not, a home purchase requires numerous things like a real estate agent, down payment, mortgage loan, mortgage insurance, and your required monthly payments.
This article will be guided through the homebuying process from the preparations, down payment requirement, the mortgage process, loan options, loan approval, and more.
Table of Contents
Preparing to buy
Preparation is key, especially for first time buyers. To sustain your good financial health, you have to make sure that you can have your down payment followed by the monthly payment to complete the home purchase.
One of the tips for a first time homebuyer is to start saving early. Secure your emergency fund then save money for the costs you are about to incur in buying a house. These costs include the following:
Your required down payment amount may vary depending on the kind of mortgage and lender you pick. Certain conventional loans for first-time home purchasers with great credit need as little as a 3 percent down payment.
However, even a tiny down payment might be difficult to save for. One strategy to work on this is by setting up automated cash transfers from checking to savings.
Closing costs are the fees and charges that you incur in order to complete your mortgage payment. Shopping around gives you closing cost assistance.
You may save money on certain charges, like home inspections, by asking the seller to cover a percentage, giving you closing cost assistance.
Moving In Costs
Aside from closing costs, you may organize a savings account in moving in. Prepare to cover urgent house repair costs, improvements, furnishings, and homeowners association fees. You may consider setting a monthly budget to make things easier.
Unlike closing costs, living expenses are also something you have to deal with every day, hence the need to assess your monthly income before making significant decisions like buying a house.
Hidden costs are something that a first time buyer should also be prepared for. As you navigate through this, remember the importance of separation of financial resources. You must have a budget for your everyday life, unexpected circumstances hence the need for emergency and retirement savings account.
After house hunting and then you get to the mortgage selection, the credit score will decide whether or not you are eligible for a mortgage and will have an impact on the interest rate that lenders will give to you.
A good credit score may be achieved by paying all of your bills on time and keeping your credit card balances as low as reasonably achievable. Poor credit may make it harder for you to in payment assistance programs but there should be one anytime soon.
Another way to achieve a commendable credit score is by keeping your present credit cards active because closing a credit card can raise the amount of accessible credit you are using, which might have a negative impact on your credit score.
Additionally, you have the right to request ready copies of your credit report, and bank statements and to challenge any inaccuracies that may have negatively affected your credit score.
If you need more knowledge about a mortgage broker, mortgage lenders, loan and its loan approval, here are the four tips for you!
Consider your mortgage options
Investigate your mortgage alternatives. Many different mortgage products are available, each with a different down payment and qualifying conditions. The following are your mortgage options:
A conventional loan program, which is geared at first-time buyers and requires as little as a 3 percent down payment, is the first on the list.
FHA loans are guaranteed by the Federal Housing Administration. An FHA loan enables down payments as low as 3.5 percent which might be favorable, especially for a first time homebuyer.
USDA loans are those that are backed by the United States Department of Agriculture. They are intended for rural homebuyers and, in most cases, do not demand a down payment.
The VA loans, which are backed by the Department of Veterans Affairs, are available to present and former veteran military service members. The good thing with VA loans is that there is often no down payment required.
Find more about loan programs for a first time homebuyer
Find a home loan that offers you the lowest possible interest rate. There are several programs for first time homebuyers available in many states, as well as in certain towns and counties.
These programs often combine low interest rate mortgages with down payment and closing cost help. Some first time homebuyer programs may also also provide tax benefits to qualified participants.
Survey mortgage rates and fees and compare
The Consumer Financial Protection Bureau suggests that consumers get loan estimates for the same kind of mortgage from different lenders in order to evaluate expenses, including interest rates and potential origination fees, before making a decision.
Mortgage lenders may provide the option to purchase discount credits, which are costs that the debtor pays up in advance in exchange for a reduced interest rate. Purchasing points might make sense if you have the cash on hand and want to remain in the house for an extended period of time.
Secure a pre approved letter
A mortgage preapproval is an offer from a lender to give you a particular amount of money under certain circumstances. Possessing a pre approval letter demonstrates to house sellers and real estate agents that you are a serious buyer.
When you’re ready to start looking for a house, submit an application for pre approval. A lender will check your credit report and evaluate your paperwork in order to verify your income, assets, and debt obligations.
Applying for pre approval from more than one lender in order to compare prices should not have a negative impact on your credit score as long as you do it within a certain time period, such as 30 days.
Pre-qualification and pre-approval for a mortgage may help expedite the home purchasing process. While these stages may seem to be identical, there are a few distinctions.
Pre-qualification is a preparatory phase in which you submit basic financial information to the mortgage lender through an online form. Multiple lenders do not verify this information, but rather utilize it to establish your eligibility for a loan.
After you’ve been pre-qualified, the lender may provide you with a preliminary acceptance letter, but it often lacks the weight of a pre approved letter.
In addition to searching the market for properties that fit your requirements, a professional real estate agent will also lead you through the negotiating and closing processes.
Obtain references for a real estate agent from other recent house purchasers. Interview a real estate agent, and ask for recommendations from those who have worked with them.
When chatting with possible agents, inquire about their previous experience working with first time homebuyers in your area, as well as how they intend to assist you in house hunting.
One tip about the home buying process is to avail home inspection service.
A home inspection is a comprehensive examination of the construction and mechanical systems of the house. Professional inspectors check for any issues so you can make an educated purchase choice. Recommended reading: What Should A Buyer Do During The Home Inspection.
Before finalizing the contract, your lender will need you to get homeowners insurance. This is separate from mortgage insurance. Home insurance pays for the cost of repairing or replacing your home and personal belongings if they are damaged as a result of an insured event.
Additionally, it offers liability insurance in the event that you are found liable for an incident or harm. Purchase sufficient house insurance that will cover the expense of reconstructing the home in the event of a fire.
The Bottom Line
Down payment, closing costs, moving in costs, monthly mortgage payment, and funding fee are just some of the expenses a buying a house entails. This also gives an idea of how much house can be, depending on its location and features.
In terms of duty, do not forget that you also have property taxes to pay. Property taxes are those imposed on real estate properties. Before finalizing your home purchase, you would also want to check if there is an urban development in the area.
Urban development is a paramount consideration to assess whether that real estate property has a lot of potential for you in the near future.