According to Statista, people in the United States purchased 5.34 million existing homes in 2019. Approximately 628,000 new homes were sold in the US in the same year. It was estimated that the
Investing in Your First Home: What to Do Before Buying Your First Home
Dated: March 4 2021
According to Statista, people in the United States purchased 5.34 million existing homes in 2019. Approximately 628,000 new homes were sold in the US in the same year. It was estimated that the number would increase in 2020, but due to Covid-19, there were fewer sales than the previous year.
According to Forbes, buying a home for the first time can be overwhelming and cause stress/anxiety during the purchase process. However, if you get all the details from start to finish, you will have a successful home-buying experience. Here is what you can do before purchasing your first home. Read on!
Save Money for Down Payment
Saving money is an essential requirement for buying your first home. Down payment requirements usually depend on your lender and the mortgage type you choose. Some mortgage lending companies offer outstanding loans with 3% down payments to first-time homebuyers, but it is not easy to save even for such a small down payment.
For instance, a 3% down payment on a $600,000 home is $18,000. Therefore, it is wise to consult with an expert before you decide on your goal. Pay attention to the closing costs while finalizing your mortgage.
The closing fees usually range from 2-5% of the loan amount. Likewise, save money for move-in expenses, such as upgrades, renovations, and furnishings, if you decide to purchase an existing home.
Improve Your Credit Score
Lenders will use your credit score to decide whether you qualify for a mortgage. It is crucial to check and strengthen your credit score before purchasing a home. You can get free copies of your credit reports from TransUnion, Equifax, and Experian.
If there are any errors, contact the bureaus to fix them as soon as possible. Keep your credit card balances low and pay your bills on time to improve your credit score. Makes sure your current cards are open because closing a credit card can lower your score. Other ways to increase your credit score are:
Make a large debt payment
Become an authorized user
Ask for a higher credit limit
Dispute any negative authorized user records
Avoid new credit card purchases
Review Different Mortgage Options
Lenders offer various mortgages with varying eligibility and down payment requirements. Although you can apply for conventional mortgages, the US government does not guarantee them. Some conventional loans for first-time homebuyers have as small as a 3% down payment requirement.
You can apply for the Federal Housing Administration (FHA) loans with a 3.5% down payment. The US Department of Agriculture also offers home mortgages to first-time homeowners. These are known as USDA loans and available for people living in rural areas. USDA loans do not have any down payment requirements.
Another option is applying to VA loans guaranteed by the Department of Veteran Affairs. VA loans are available for military service members and do not have down payment requirements.
You can choose a 30 years fixed-rate mortgage or a 15 years loan, and each has its own pros and cons. For instance, a 30 years mortgage has a higher interest rate but smaller monthly payments and a 15 years mortgage comes with a lower interest rate and larger monthly payments. Choose the one that best fits your needs!
Find a Good Real Estate Agent
Once you have got a preapproval letter, it is time to find an experienced and skilled real estate agent who can search the market for houses based on your requirements. A qualified real estate agent with knowledge of the local area's home market can guide you through the home inspection, negotiation, and closing process.
Get referrals from your family members, friends, and other home buyers or search the internet to make a list of experienced agents. Once you have shortlisted a few agents, interview them and request references. During the interview, ask about their experience with first-time homebuyers, their skills, and how soon they can find you a home.
Choose the Right House
Consider your budget and lifestyle when measuring the benefits and downsides of different types of homes. If you are concerned about your privacy, make sure you do not choose a townhouse or condominium. In that case, a single-family home is a much better option.
It is essential to set aside some money for Homeowners Association Fees when shopping for houses, townhomes, or condos in planned or gated communities. Your real estate agent may advise you to buy a fixer-upper, a single-family home that requires repairs or renovations. These homes are less expensive than move-in ready houses. However, you will still need money for repairs and updates.