Buying a home can be fun and exciting as you think about the next phase in your life. It can also be overwhelming and frustrating, especially if it’s your first time. There is a lot to think about and a lot of fees and money involved, it’s not something you want to approach without the proper knowledge.
To get started, here are five tips on where to start when you are considering buying a home. These are for first-time home buyers and those who have been through the process before.
These tips will help lower stress and prepare you for what’s ahead. So take a few deep breaths, read on, and get excited!
This is something that you should start focusing on well before you decide to buy a home. It can take time to build credit or possibly even longer to improve a bad credit score.
Your credit score is something that lenders look at closely when deciding whether they should lend to you and what those terms should be. It tells banks and lending agencies how likely you are to pay back the money you borrow from them.
If you don’t currently have any, there are ways to build credit before you apply for a home loan.
Sign up for a credit card
This is something that many recommend, but it’s important to be responsible about what kind of credit card you open. Try to go with one that makes sense for you. A gas card might be a good option if you drive a lot. A store credit card or an airline card could also be good options.
You can always dive deep into card rewards and what makes the most sense for your lifestyle. The most important thing to remember is paying your bills on time. Don’t even look at the top of your credit limit if you can’t afford to pay the bare minimum. Try to pay it off completely every month or you could get in a bad cycle and end up hurting your credit instead of helping it.
Make your utility or rent payments on time
One great way to help boost your credit is by making payments on your existing bills on time. If the goal is to show lenders that you are responsible and able to pay back the money loaned to you, what better way than making payments?
You have to make sure that your rent payments are being reported to count toward your credit score. There are a few services you can use to report your rent if your landlord doesn’t already do that. Check with the person who receives your rent first, and then look into some reporting options if they do not report.
Become an authorized user
Talk to a family member about adding you as an authorized user on their card. If they are willing to do this, it adds that card’s payment history to your credit files. You don’t have to get or use the card to be an authorized user. Just be sure the primary user has a good payment history on the card, so you also get that good credit.
A downpayment is the amount of money you pay toward a house before taking out a loan. While there is really no set required amount for a downpayment, lenders can adjust their rates and whether or not they lend to you based on how much you choose to put down.
The more money you put upfront, the less the lender has to lend and the lower your monthly mortgage payments are. This is especially true if you put down less than 20%. The 20% mark is the cutoff for PMI. Most lenders require PMI (private mortgage insurance) on any loan where the downpayment was less than 20%. This is so lenders can protect their investment.
This fee is usually .5-1% of your loan amount. So if you take out a $300,000 loan, you can expect to pay $1,500-$3,000 a year in PMI.
So saving for a larger down payment can really help you save money and set yourself up for lower payments in the future.
If you are ready to buy, talk to a lender and get pre-approved for a home loan. This shows sellers that you are serious and set up to be prepared to make an offer once you find the right home.
Your pre-approval will also tell you how much you can borrow. This will help you to know what pricepoint to focus on when house hunting. It will help you stay realistic with what you can afford and not waste your time with homes that are out of your price range.
Decide on your wants, needs, and deal breakers
Before you start your house hunting, make sure that you and whoever you’ll be living with discuss and get on the same page with exactly what you want. Some of the big things to focus on are:
- Number of bedrooms
- Number of bathrooms
- Number of floors (ranch or two-story)
- Size of yard
- Finished basement
- Guest rooms
- Size of garage
Once some of these basic needs are figured out, it’s worth discussing wants. These are things that would be nice to have but might not be deal breakers if the house has everything else you are looking for. These are unique to each homebuyer but could be anything from a large kitchen island to a front porch. Just think about what would be in your perfect home and add it to the list.
Hiring a real estate agent that listens to you and understands what you are looking for is one of the most important things you can do. A strong partner who knows the ins and outs of the market you’re looking in can make the difference between house hunting for months and getting your dream home quickly.
Though real estate agents do charge for their services, not only are they worth the money, but the home seller generally covers that cost as part of the agreement. So working with an agent should be a no-brainer.
When choosing the right agent, make sure you interview multiple. You want to feel comfortable with the person you work with and like they will go to bat for you. This is someone that you will likely work with for a few months and someone who will help you spend a lot of money, so don’t pick just anyone.
In the end, buying a home is a big purchase, and you want to feel as prepared as possible. Taking steps to get in a good place financially and mentally will help buying a home go smoother. Take your time and enjoy!