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How do you know when you’re ready for homeownership? Whether you’re sick of renting or want to take care of your own asset, there are different reasons why a person may choose to start their homeownership journey.
There are a lot of things to keep track of during the mortgage process like house hunting, mortgage documentation, budgeting your finances, and choosing the right Real Estate Agent and Licensed Loan Originator to help you find the best home financing solution for your new home.
To help you take the first steps toward being mortgage ready, we’ve outlined 10 tips to help first-time homebuyers headstart their journey to homeownership.
In general, a first-time homebuyer refers to an individual purchasing a primary residence for the first time. The definition is not restricted by age. Some mortgage programs also define a first-time buyer as someone who has not owned a home in three years.
Before you begin house hunting, it’s recommended that you make a two-column list to visualize what your non-negotiables are versus what you can compromise on. These are also called must-haves and nice-to-haves.
Some common must-haves may include:
Keep in mind your family’s and pets’ needs, the amenities you want close by, and how much maintenance you feel comfortable performing. Are you comfortable purchasing and renovating a fixer-upper or would you prefer a move-in ready home? What budget is most comfortable for you?
By identifying your wants and needs early, you can stay focused on what matters most and reduce your stress.
In addition to your home needs, be sure the neighborhood aligns with your expectations and lifestyle. After all, you can change aspects of your house but you can’t change the location. Just like individual people, the community you choose to live in will have habitual routines and quirks. As you house hunt, be sure to note what sort of neighborhood you’re the most drawn to and why.
Along with researching access to local amenities, safety, commute times, and school districts, plan some time to drive through and visit. Exploring the area at different times on both weekdays and the weekend can help you understand how the community operates and how your family can fit.
While some first-time homebuyers may only consider the down payment when budgeting, there are several expenses to plan for before your loan closes. In addition to some one-time costs, homeownership has ongoing expenses, such as maintenance and your monthly mortgage payments.
Budgeting looks different for everyone and the rules are not necessarily set in stone. When it’s time for you to apply for a mortgage, your lender will be using a more detailed way to determine your affordability, including your credit, down payment amount, and debt-to-income ratio.
Setting up your savings can be as simple as transferring a portion of your paycheck, bonuses, and tax refunds into a separate savings account. If you’re still low on funds, find ways to cut down on additional costs throughout the month. For example, cancelling unnecessary subscriptions or cutting back on food delivery can help save money.
Your credit score is a three-digit number that represents the level of financial risk associated with lending money to you, and the likelihood that you’ll pay your debt back on time. A score typically ranges between 300 to 850. The higher the number, the more creditworthy a borrower appears to lenders. This can help you secure a better interest rate and increase your chances for loan approval.
Your numerical credit score and credit history are two factors that a lender repeatedly looks at throughout the mortgage process. They are key factors in qualifying, pre-approval, underwriting, and your interest rate.
If your credit score is low, work on building it before you apply for a mortgage by:
Although the terms sound similar, pre-qualification and pre-approval have different benefits for prospective homebuyers.
A pre-qualification is an estimate of whether a lender could approve you for a mortgage, how much money you can borrow, and what loan programs you may be eligible for if you formally applied.
You can use pre-qualification information to help you build your homebuying budget as it’s usually conducted through a short phone conversation or via e-mail. A pre-qualification is also not a commitment to using a lender, allowing you to shop lenders for a loan package that works for you.
Pre-approval occurs after you have a thorough financial review to verify your conditional mortgage approval. It provides written proof from a lender that you have the financial means to qualify and pay back the loan you’re applying for.
It’s recommended that you obtain a pre-approval before you make an official purchase offer. The letter provided by your lender can show the home seller that you have the ability and funds to make consistent monthly payments. This is especially helpful if you’re in a seller’s market and need a leg up on competing offers.
A real estate agent is a licensed individual who helps people that are buying or selling properties. Like how a Licensed Loan Originator can assist you throughout the mortgage process, a real estate agent can guide you during house hunting and making an offer.
A local real estate agent can offer important insights about the area’s home prices and property taxes, helping you understand the ins and outs of local trends. Additionally, your agent can help you learn about potential properties that fit your needs, recommend and help schedule appraisals and inspections, and assist in building a strong offer with negotiations that favor you.
An inspection is an assessment of a property’s safety and quality to uncover any issues with the structure and systems before you go through with the home sale. The inspector will take notes and photographs to include in their final report.
A typical inspection will examine the home’s:
An inspection is not a pass or fail exam and no fixes are mandatory after its completion. However, your inspector may include estimations on when the home’s systems will need to be replaced.
As the buyer, you’re often welcome to attend the inspection. Feel free to ask the inspector how you can get the most out of the experience without getting in their way.
Negotiations allow you to haggle for conditions that are important to you before you sign a purchase contract. Some common negotiations during a home sale include the home’s sale price, your closing date, closing costs through seller concessions, or other contingencies. Contingencies give both the buyer and seller the ability to walk away from the transaction if certain conditions are not met.
Contingencies and negotiations are very common during the homebuying process. Remember to leverage your real estate agent’s expertise to help you make a strong offer. Your agent will work with your needs and may leverage things like the home’s appraisal results or comparable properties to ensure you’re getting what you want out of the deal while still being competitive.
On average, a buyer spends between 2% and 6% of the purchase price on their closing costs. Additionally, your down payment minimum contribution typically ranges between 3% and 20% of the purchase price. This is a substantial upfront cost if you’ve never bought a house before.
There are several programs that a first-time homebuyer can leverage to assist with certain homebuying costs, including your down payment or closing costs. In fact, there are over 2,000 down payment assistance programs available for United States’ homebuyers, with each program having different requirements, qualifications, and benefits.
You can search for programs through the Department of Housing and Urban Development (HUD), non-profit organizations, local government, or the government grant database. When you meet with your Loan Originator to discuss your home financing, ask them about your down payment assistance program or grant options. They may be able to give you insights on which program could work best for your finances and home needs.
Mortgages are not one-size-fits-all. We know that your home and financial needs are as unique as you are, which is why we offer a variety of loan options, ranging from conventional or renovation to state bond or specialty. Figuring out what loan program works best can seem like a big feat, especially as a first-time homebuyer.
Our loan program pages include reasons why a borrower may choose that mortgage option to help you be more informed. Your Loan Originator will also walk you through what programs work best the property you’re looking for and your finances.
The experts you hire when you purchase a home can help demystify the process and break it down into steps. That’s one of the many reasons our Licensed Loan Originators take their jobs so seriously. Ready to take the important steps toward homeownership? Reach out to us to connect with a mortgage expert.
Homestead Funding offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.
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