The spring season for buying a home is finally here. If you are one of those first-time homebuyers, you need to first organize your finances and find out what you can afford before you plunge in. There is a checklist you need to go through before you make that important purchase.
What First-time Homebuyers Must Consider
- Raise your credit score. Go through your credit report and ensure that your credit score is good if you want mortgage lenders to offer you a loan as a first-time homebuyer. A good credit score starts from 720 and above. A score of 750 to 800 is even better. Lack of a good credit score may result in mortgage lenders denying you a loan, or if you get the loan, it may come with a high interest rate. You can raise your credit score by paying your bills on time and paying down your credit cards.
- Have a down payment. First-time homebuyers need to have a down payment of 20 percent or more of the purchase price of the house, according to experts. If you do this, you won’t have to pay private mortgage insurance which could add around $100 to your monthly mortgage payments when you have a lower down payment or you don’t have any at all.
- Go over your budget. First-time homebuyers should remember that buying a home is a long term expense that needs to be planned for in the budget. Bear in mind that you will need to pay for the house every month for many years. Ensure that you can afford to pay not just the mortgage and interest, but the utilities, association fees, amenities and property taxes that come with the new house. Experts advise that you get prepared by setting a monthly budget that you can pay comfortably even if you were to lose your job and be unemployed for a while.
- Decide on the kind of mortgage. You need to decide what kind of mortgage you will go for as a first-time homebuyer. You can choose from an adjustable-rate mortgage or a fixed-rate mortgage. Your interest rate payments with adjustable rate mortgages will be low to begin with but go up based on an index after some years. Experts advise people to go for adjustable rates if they plan to live in their house for a short time or if there is a limit on rate change. Fixed rates do not change during the entire mortgage period.
- Think about the length of the loan. First-time homebuyers will pay less for their home if they take a short term loan of 15 years rather than one for 30 years. Short term loans have a lower interest rate than long term ones. However, payments will be higher for a 15 year loan and not everyone can afford this.
Get Your Paper Work Ready
Once you have considered the above facts as a first-time homebuyer, you will need to then get your paper work ready. Get your recent credit card records, paycheck, student loan records, federal income tax records for the past two years, utility and rent check bills that may have been canceled, which the mortgage lender might want to look at.
Search for Your Dream House
As a first-time homebuyer, you should have a specific area in mind where you prefer to buy your home and live. This will give you a rough idea of how much money your new house will cost and what you will get in return. Experts caution that it is not enough to think of living in a big geographical area as houses change from block to block. Instead narrow down the area you would like to live until you are able to pinpoint the exact block.
First-time homebuyers also need to consider the tax rates that they will be required to pay. Tax rates vary from area to area and one needs to find out whether they can be able to afford these taxes if they buy a house in a certain area. There is no harm in waiting for the mortgage to be approved before searching for your dream home. You can also visit a real estate agent who is experienced in buying homes to help you find the right house for you, if you can afford to.
Once the bank has approved your house mortgage and you have the money available, it will help for you to go to the neighborhood you wish to buy the house and drive around it to get a feel of the place and see what kind of house you will be interested in moving into. This will help you to start familiarizing yourself with the street names and street numbers, and have fun thinking of crossing this important milestone of buying your first home.