5 Essential Tips For The First Time Home Buyer

Becoming a homeowner is a part of the American dream. Every year first time homebuyers enter into the housing market and help with our economy. They decide that they are ready for the commitment of owning a home and they no longer want to lose money every month to renting. After making the decision to buy, first time homebuyers need to get ready for the responsibilities associated with homeownership. Here are 5 essential tips for the first time homebuyer.

1- Get Your Credit Ready

One of the biggest factors on your mortgage loan application is your credit report. During the underwriting process, lenders will be looking for someone who has a history of well established credit. They want to see someone who has responsibly handled their debt. If loan applicants have struggled to pay their debts in the past, lenders won’t feel like they can trust them with a large mortgage payments. Focus on building a strong credit reputation before buying a house.

How to Build an Excellent Credit Rating:

• Pay Your Bills on Time. 35% of your credit score is determined by your timeliness of payments. Avoid making payments that are 30 days late or more. This will significantly drop your credit score and raise red flags for lenders.
• Don’t Max Out Your Availability. Another big factor on your FICO score is your credit utilization ratio. This ratio shows how much debt you’ve accrued in comparison to what is available. Do not max out your credit cards. Try to keep your balances less than 50% of what is available on your credit lines.
• Have A Balanced Credit Portfolio. Try to maintain a few different types of debts on your credit report. Lenders like to see that you can responsibly handle credit cards, but also large installment payments such as a car loan or student loan.
• Minimize Credit Inquiries. Lenders like to see that you can handle a few different types of debts, but avoid having too many credit inquiries. Don’t apply for a credit card at every store in the mall. Too many credit inquiries cause lenders to believe you are seeking debt as a way to maintain your lifestyle.

2- Save Up Money

One of the key parts to being ready to own a home is saving money. When applying for a mortgage there are several different reasons you’ll need money saved. Depending on the type of mortgage you are applying for you’ll need a down payment. Down payments can range between 3.5%- 20% of the purchase price of a home.

There are also closing costs associated with buying a house. Closing costs usually average to about 1% of the purchase price.

You’ll also need to factor in moving costs. Get quotes from different moving companies to see what the going rate is. Even if you plan to move yourself, you’ll still need to pay for a truck and moving supplies.

Lastly, you should have money in savings. Lenders want to see that applicants still have money in their savings account after the costs associated with buying a home.  They typically want to see at least 2 months of reserves, which is 2 months of mortgage payments.  Having money in savings will help you to handle different circumstances that may arise in life without affecting your financial status.

3- Know What You Can Afford

Homeownership comes with many costs. Before making the commitment of buying a house, sit down and look at your budget to see what you can afford. Look at your budget and determine how much money you feel comfortable allocating toward monthly housing expenses. Don’t neglect other financial goals such as paying off consumer debt or saving money each month. Make sure your housing costs allow you to still achieve your other financial goals while still living a life you enjoy.

Your mortgage pre-approval may not line up with your desired mortgage and housing costs. Ask your lender what mortgage amount will make your desired payment.

Many first time homebuyers only think about how much their mortgage payment will be. As renters, the only housing expenses you are responsible for is the monthly rent amount and utilities. However, homeownership comes with more financial responsibilities. It is wise to compare your rent amount to your new mortgage amount, but don’t neglect to factor in the additional costs associated with homeownership.

Other Homeowner Expenses You Should Account For:

• Home Maintenance
• Utilities
• Homeowner’s Association Dues
• Landscaping
• Property Taxes
• Homeowner’s Insurance
• Safety & Alarm

4- Get Prepared for the House Hunt

It is tempting to jump in head first and start looking at homes. This after all is the fun part for most people. First time homebuyers love looking at different properties and envisioning themselves in a new home. It’s like living through an episode of house hunters. However, viewing homes before doing your research is a big mistake. It may cause you to look at properties you can’t really afford or make emotional decisions. Prepare yourself for house hunting so you don’t end up making a decision you’ll later regret.

House Hunting Tips:

Get Pre-Approved Before House Hunting

Always get pre-approved through a lender before beginning your house search. Many realtors won’t even show homes without seeing your pre-approval letter. A pre-approval will help you to avoid looking at homes outside of your budget. It will make your offer seem more credible to a seller and save you time once you’ve gone under contract.

Keep Your Emotions in Check

It can be difficult to keep you emotions out of house hunting. Many first time homebuyers look through rose colored glasses and envision the many memories they will create in a home. However, don’t let these emotions cause you to make costly mistakes in the home buying process.

Don’t Overlook Big Repairs

Many first time homebuyers fail to recognize large repairs lurking in a home. They are not experienced in maintaining a property and aren’t familiar with the upkeep on a home. Keep your eyes open to any water damage or foundation issues. Be present at the inspection and completely read the inspection report to make sure you haven’t missed out on any critical information. Always include an inspection contingency in your sales contract to protect you from any hidden repairs.

Look Past Easy Cosmetic Fixes

Many first time homebuyers want to buy a property that is in move in ready condition. They want to move their furniture and start enjoying the home immediately. Don’t miss out on a great home because you aren’t willing to put a little sweat equity into it.  Quick repairs or upgrades like painting, removing wallpaper or replacing dated light fixtures are relatively inexpensive and personalize your home.

5- Stay Diligent Before Closing Date

Many first time homebuyers make the mistake of thinking they are in the clear once they’ve signed a sales contract. Remember that nothing is final until you’ve signed all of the closing documents and have the keys to your new home in your hand. There is still a lot to do between going under contract on a home and closing.

There are many common mistakes homeowners make in before closing. Here are a few things you should avoid during this time period:

1- Buying a New Car. For some reason many first time homebuyers feel that they need a shiny new car to park in the driveway of their new home. Avoid purchasing and financing a car before closing on your new home. A new car payment on your credit report will drastically change your debt to income ratio and possibly interfere with your loan application being approved.

2- Changing Employment. Most lenders like to see two years of job history on your loan application. Changing employment right before you close on a home may push back your closing date if you need to provide extra documentation about your new job. Changes in employment and income can also jeopardize your loan approval. Getting a promotion with your current employer should not be an issue, you’ll just need to provide documentation to your lender outlining the changes.

Making these mistakes can cause a delay in your closing date, or even worse, jeopardize your loan approval. You don’t want to miss out on buying the home you want because of other purchases. Save these decisions until after you’ve bought your home and have settled in.

Purchasing your first home can be both exhilarating and stressful. Applying these techniques and relying on the help of one of our  great mortgage professionals will make you realize the dream of owning your home. Apply online today to see what you can be pre-approved for and start your journey toward calling a house your home.