Buying a home for the first time is exciting and scary all at once, like one of those amusement park rides that turns everyone upside down, makes their hair stand on end, and empties the spare change from their pockets.
However, with a bit of planning and some helpful tips, you can take some of the unwanted surprises out of the mortgage and home buying process to ensure that your focus is on making the right home choice for the long term.
Here are some first time home buyer financial tips to help get you started!
Know Your Credit Score
Your credit score, in part, determines if you will qualify for a loan, which loans are available to you, and the interest rate for the loan. Your bank may be able to provide you with your credit score for free. You can also request credit reports online or via 3rd party credit agencies. If there are negative items on your report that will affect your interest rate, it may make sense to address those before committing to a higher interest loan. Over the course of 30 years, the higher rate will cost you more.
Determine Your Monthly Housing Budget
Falling in love with homes outside of your budget just might break your heart. Take an honest look at your monthly expenses and leave some room for taxes, insurance, and repairs and maintenance. A new water heater costs hundreds. A new central air conditioner costs thousands, as does a new roof. It's likely that you'll be replacing all of these items at some point during the next 30 years.
How Much Do You Have Saved for the Down Payment?
While there may be loans available to you with a small down payment, if you can put down a sizeable amount, twenty percent or more, you will save thousands over the course of the mortgage term. A larger down payment also allows for a lower monthly mortgage payment. With the savings, you have the choice of making extra payments or saving for a rainy day. There may come a time, like when in-between jobs, when you are glad that the mortgage payment is lower.
How Much Other Debt do you Have?
Paying down other debt, or paying it off entirely, will improve your credit score, enabling you to get a better rate. It may also allow you to qualify for a larger mortgage amount because lenders look at debt to income percentages when underwriting a loan.
Prequalify for a Mortgage
Prequalifying will not only help you to know your real budget, but will assure sellers that you are ready and able to buy if you decide to make an offer. This step might make the difference if there are competing offers.
Can You Make Extra Payments?
The amount of money you can save by making extra payments will vary depending on the loan principal, the interest rate, how often you make extra payments, and how much those payments are. The savings are significant in almost all cases. If you're able to make biweekly payments, you'll pay one extra payment per year without even trying, saving thousands over time and cutting years off your mortgage.
Taking a step back from the excitement to buy a home allows you to plan out the process, set a realistic budget, and remove some of the roadblocks that can cost time and money. Armed with a few first time home buyer financial tips, you're ready to start planning your next determined steps toward your dream, your future home. For more first time home buyer tips, download our eBook now!