Homeownership is still one of the top things that most people want to do regardless of their age and the good news is that there are more people than ever before who are thinking about buying their first home.
In this article, we will offer you several tips you can use for buying your first home this year.
What To Expect When Buying Your First Home
1. Be Sure You’re Ready To Commit To A Loan
The No. 1 tip for first-time home buyers that we can offer is to be sure you’re ready. to buy a house. The average mortgage loan term is 15 – 30 years. Although you don’t need to stay in your home for that amount of time, buying a home is still a major commitment. Be 100% sure that you’re ready for homeownership before you take on a mortgage.
Start by asking yourself the following questions:
- Am I ready to commit to this home and city for at least 5 years?
- Do I have an emergency fund that can cover at least 3 months of expenses?
- Do I have a stable income?
If the answer to any of these questions is “no,” you may want to hold off for now. Keep saving. Keep researching.
Consider whether you have any events on the horizon that could affect your location, income or expenses. If so, these are other reasons to pump the brakes.
2. Don’t Skip The Preapproval
It can be tempting to jump right into hunting for the perfect house, particularly if this is your first time. It’s a really good idea to get a mortgage preapproval before you begin comparing properties.
If you’ve heard of a prequalification, it’s important to know how it differs from preapproval. Let’s review that difference now.
Prequalification letter: A prequalification is an estimate of the amount of home loan you can get. It’s based on an informal evaluation of your income and other information.
Preapproval letter: A mortgage preapproval is a document from a lender that tells you exactly how much loan money you can get. It’s based on your financial information, such as W-2s, bank statements and your credit score.
Benefits Of Preapproval
Some of the benefits of getting preapproved include:
You know exactly what you can afford: You and your real estate agent know what you can afford once you have a preapproval letter in hand. This will help you shop within your budget.
You can make a stronger offer: Sellers need to know that the buyer they choose can afford their home. A preapproval shows a seller that you have the money needed to purchase the home.
You’ll experience fewer surprises: When you’re preapproved, you’re less likely to run into last-minute surprises or delays with your lender.
The bottom line? Get a preapproval before you start shopping for a home. Read on to learn why a preapproval may not reflect the final loan offer.
3. Maintain Your Credit
Now is not the time to open a new line of credit. When you apply for mortgage preapproval, lenders will pull your credit report. They’ll do it again before you close on the house and its corresponding mortgage.
If they find that you’ve taken out another loan or line of credit, that your credit balance has increased or that you’ve started to make late payments, it could risk your final approval.
Be sure to keep paying your bills on time. Don’t attempt to influence your credit rating for better or worse or begin any risky spending. Lenders want to see that your behavior patterns are consistent and can be relied upon for future payments.
4. Save For A Down Payment
One of the Federal Housing Administration’s (FHA) most important priorities is helping home buyers with the purchase of their first home. If you qualify as a first-time home buyer, you may have access to state programs, tax breaks and an FHA loan.
According to the U.S. Department of Housing and Urban Development (HUD) website, a first-time home buyer is anyone who meets the following criteria:
- An individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This includes a spouse (if either meets the above test, they are considered a first-time home buyer).
- A single parent who has only owned with a former spouse while married.
- An individual who is a displaced homemaker and has only owned with a spouse.
- An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
- An individual who has only owned a property that was not in compliance with state, local or model building codes and which cannot be brought into compliance for less than the cost of constructing a permanent structure.
If you qualify as a first-time home buyer, you can benefit from a number of assistance programs, including down payment assistance loans and grants.
We’ll get into minimum requirements below, but the upside of saving at least 20% for a down payment is that you can avoid mortgage insurance on conventional loans.
5. Understand Your Loan Options
Did you know that there are multiple types of mortgage loans? The type of loan you choose will determine your down payment amount, what type of home you can buy and more. Here are some of the more familiar types:
Conventional loans: Conventional loans are the most common type of home loans. You can purchase a home with as little as 3% down.
FHA loans: An FHA loan can allow you to buy a home with less strict financial and credit score requirements. You can get an FHA loan with a 3.5% down payment and a credit score as low as 580.
USDA loans: USDA loans are for people who want to buy a home in a qualified rural or suburban area. You can get a USDA loan with 0% down, subject to household income restrictions. Rocket Mortgage® doesn’t offer USDA loans at this time.
VA loans: VA loans are exclusively for veterans and members of the armed forces and National Guard and qualified spouses. You can buy a home with 0% down if you qualify for a VA loan.
Each type of loan has its own qualification standards that you must meet. For example, VA loans require you to meet military service requirements. Make sure you meet these standards before you apply.
Once you have a goal in mind, you can begin to set up automatic payments to your savings account, making it easier to predict when you can make your move.
Contact Valleywide Realty
At Valleywide Realty, we're Central Valley experts and can help you find the right property regardless if it's a single, multifamily, traditional home or rental property.
To get started with searching for a home, call us at (209) 831-9747 or click here to connect with us online.