Are you ready to buy your first home? We know how nerve wracking the entire process can be, especially when you’re a first time home buyer! It can be hard to know where to start, who to trust, and really what to do at all – especially when it comes to the financial side.
Read on we give you tips to hopefully help you navigate this fun and exciting process and help you avoid some common mistakes along the way.
First Time Home Buyer – A Guide To The Basic Financing
Owning a home can be a really big commitment, which is why buying your first home can seem stressful. However, we hope that by the end of this article, you’ll be feeling excited and hopeful instead of stressed and overwhelmed.
You Should Start Saving For A Down Payment Now
The first secret we like to give first time home buyers is to start saving for a down payment as soon as possible. You’ll hear the common number of putting at least 20% of the purchase price down on the home. Many lenders will permit much less though, and there are a lot of first time home buyer programs that allow as little as 3% down.
It’s important to note that if you put down less than 20%, it could mean higher monthly costs and it also means paying for mortgage insurance. Even a small down payment will add up depending on the price of your house. A 5% down payment on a $200,000 home is $10,000!
A couple tips we have to help you start saving for that hefty down payment includes setting aside any tax refunds you get yearly, and not spending those work bonuses. Set up an automatic savings plan where every two weeks with your payments, you’re automatically saving money into a separate account.
Browse Through All Your Options
When it comes to mortgages, there are a lot of different options out there. Each one has its own set of pros and cons, so make sure you work with an expert and browse through all of your available options.
Conventional mortgages are loans that are not secured by a government entity, though they do conform to those traditional standards and they could require as little as 3% down. It is available through a private lender or two government-sponsored enterprises, Fannie Mae or Freddie Mac. These loan interest rates tend to be a little higher than government-backed mortgages, such as FHA loans.
FHA loans, on the other hand, are insured by the Federal Housing Administration and they permit down payments as low as 3.5% down on your first house. These loans are very popular for first time home buyers.
VA loans is another type of loan that is guaranteed by the Department of Veterans Affairs, and oftentimes they require no down payment at all when they qualify.
At the end of the day, making a higher down payment means a lower mortgage payment every month. The smallest mortgage payment possible means opting for a 30-year fixed mortgage. If it works for your budget to afford larger monthly payments, you can get a lower interest rate with a 20-year or 15 year fixed loan.
You MUST Get Pre Approved
The next first time home buyer financing secret we have is getting pre-approved before you even start looking at potential houses. When you pre-qualify for a mortgage, this gives you an estimate of how any given lender will give you based on both your income and your debts. A pre-approval, on the other hand, is when the lender confirms in writing how much they would lend to you, including the terms of the loan. They’ll go through all of your finances and really give you an honest estimate of what price range you should be looking at.
Having this preapproval letter when you seek out a real estate agent makes you look much more serious to the seller, and will definitely give you an upper hand when you find the right house. Many agents won’t even show you houses until you have at least a pre-qualification so that they can show you the right houses for your budget.
Don’t Forget About Closing Costs
Many people don’t think about it when they are saving for a down payment, but you’ll also need to budget money for closing costs. Closing costs are generally between 2% and 5% of your loan amount, which can really add up, especially if you have a tight budget to begin with. However, you can shop around and compare prices for certain closing expenses, like inspections, title searches, and insurance. Sometimes the seller will even pay for a portion of your closing costs. Your agent will help you with all of this negotiating and inform you of all of your best options.
Remember that once you’ve paid your down payment, and you’ve budgeted for closing costs, you should also set aside a little bit of money for when you actually get to move in. New houses usually mean you’ll want new things to put in it, including updating fixtures, new furnishings, new paint, and more. Knowing you’ll have some money to invest in your home will give you a little peace of mind after you move in.
Get Homeowners Insurance
We might not call this tip a secret, because a lot of lenders will require you to buy homeowners insurance. However, it’s important that you get the right insurance for your needs. Shop around and compare rates and look closely at what’s covered. A less expensive policy usually means fewer protections and more out of pocket expenses.
Keep in mind that flood damage isn’t covered in standard homeowners insurance, so you might need to buy separate insurance.
ALWAYS Get An Inspection
If you’re just buying a home, you might not know how important this is, so let us be the first to tell you – you should always get an inspection, even if you don’t think you need one. Many people will even have an inspection contingency, which means that you can withdraw your offer if the inspection comes up with anything major.
Typically how the process works is that after your offer is accepted, you’ll pay for a home inspection to examine the property’s condition. Make sure you really vet your inspector. Not all inspections include important things, like mold or pests or even radon, so make sure you know what’s included.
Your realtor will be able to help you answer any and all questions about this process, so don’t be afraid to pick their brain.
Partner With The Right Agent
Our last big secret for first time buyers is to partner with the right agent that actually listens to your needs. Since you’ll be working so closely with this person, and letting them help you with probably the biggest purchase you’ll ever make, it’s essential you find someone that you get along well with.
The right buyer should be highly experienced, a good listener, know the market, and of course, know the area you’re looking to buy in. When the time is right, reach out to us at Harbor Realty. We have the knowledge and the tools you need, and we’re great at actually listening to what you need and want.
