Being a first-time home buyer does not have to be an anxiety-ridden experience. Although this is probably the largest investment you’ve made to date, it is an exciting one. After being in the industry for over 10 years and helping out new homebuyers, I have comprised some expert tips to assist you in this new and thrilling time in your life.
Being proactive and learning your options is imperative in your home buying decision. The standard down payment new buyers put down is around 20%. However, there are many options that lenders are offering these days and it is possible to take advantage of a first-time home buyer program. There are some programs available that allow you to put down as little as 3%. However, if you put down less, there can be higher costs associated with private mortgage insurance. I always recommend first time home buyers set themselves up for success by saving early-on and being realistic with where they are at and what they are comfortable with so that we can find them a house they love and a mortgage that is realistic for their monthly budget. I recommend using our mortgage calculator to assist in planning out your budget.
Your credit score is an imperative piece of the puzzle when it comes to buying a home. Given that mortgage lenders use your credit score to evaluate you as a borrower it is important to make sure you are working towards getting or maintaining a high score. The Federal Housing Administration requires a credit score of at least 500 to buy a home with an FHA loan. Many private lenders require a score to be 620 or higher depending on the lender. To learn more tips on raising your credit score view my credit score tips.
Additionally, when taking out new credit cards or loans there is a minor ding to your credit score. When you are getting ready to purchase a home make sure you do not open any new accounts as you want to maintain the highest score possible.
Creating A Budget
Once you have your credit score and are preparing to begin looking for your dream home it is imperative for you to decide on a budget. It can become overwhelming when presented with homes that are out of your financial means so be sure to determine a price range that is affordable.
Down Payment Options
Buying a home is an investment. Because we don’t always have all the money upfront to purchase a home, there are different payment options one can explore. Illinois offers a few different programs which you can learn more about here.
Budgeting for Additional Costs
I have seen when a new home buyer budgets the cost of a home but does not consider the amount of costs that come with purchasing a home. In addition to your down payment, there are closing fees which are costs associated with your loan that generally range from 2%-5% of your total loan amount. Other things to factor into your budget are furnishings, appliances, or any additional touch ups you may want to do on your new home.
There are different mortgage rate options when purchasing a new home. It is important to determine what type of loan is right for you. One can get fixed or adjustable-rate mortgages. When exploring fixed loans, I recommend budgeting your payments as you may receive a lower interest rate with a 15-20-year loan as opposed to a 30 year loan. Adjustable-rate mortgages can be attractive because they offer a lower interest rate for the first few years. However, there is a lot more risk associated with these types of loans. I also recommend reaching out to a few different lenders as you are more likely to get a better deal when you compare what multiple lenders can offer.
Positive and Negative Paying Points
Many mortgage lenders offer discount points, which is essentially prepaid interest. This allows you to pay an upfront fee to lower the interest rate of your mortgage. In addition, discount points can be tax-deductible, but is best to speak to your tax professional first. Be sure to specify with your lender whether or not they are offering positive or negative points as they are two separate options that can easily be confused. Negative points are when you receive a credit by paying a portion of your loan fees in exchange for a higher interest rate. When identifying your options on positive or negative points be sure to take in consideration the type of loan you have as they are all important and can vary.
I hope some of these tips will make the buying process easier. If you have any questions or want to discuss any of these tips in greater detail feel free to reach out or check out our events page for our next First Time Buyer Seminar or Coffee Chat!