Buying a home is a big deal. Not only is it an obvious monetary commitment, but it is also a big milestone in life. Owning a home can help plant roots in a community and give you the opportunity to develop friendships with neighbors in a way that apartments simply can’t.
As a first time homebuyer, there are probably a ton of questions running through your mind. We have had extensive experience in all types of loans and refinancing as mortgage lenders. Here are some of the most common questions we get asked by first time home buyers:
- Is my credit good enough? (If you are above 800 you have “super prime” credit, along with 20% of other Americans)
- Do I have enough savings and/or is my debt load under control?
- Do I really want to live here?
- What type of mortgage options should I choose?
- Do I really need a mortgage broker?
We understand this is an important decision to you. To help you feel comfortable making this important decision, our mortgage brokers have compiled a list of top things first time home buyers should know and do. If you have any questions, all of our mortgage brokers are willing and able to answer all questions you might have.
Tips for First Time Home Buyers
Understand Your Credit Score: This is more than just knowing what your credit score is. First time home buyers should know how their credit score can affect a mortgage. The biggest impact credit will have is with the interest a first time homebuyer pays. Mortgage brokers estimate that a jump from 650 to 750+ credit score can save nearly $35,000 in interest on a $200,000 home mortgage. Before the home buying process is begun, it is a good idea to check your FICO score and perhaps work on improving your credit score if necessary.
Buy Responsibly: Just because you get approved for a $500,000 home loan doesn’t necessarily mean you should use the entire amount. Make sure that the mortgage payment you sign into fits within your means. It is highly recommended that your mortgage payment is less than 28% of your gross monthly income. This will provide plenty of space to take care of all your financial needs.
Stay On Top of Paperwork: Mortgage brokers know too well how much paperwork is involved in applying for a home loan. Documentation of income, tax returns, employment, identity, credit score, and more are needed before going in to get a loan. Talk to a mortgage broker in your area to get a full list of all the necessary paperwork you will need to have available.
Pre-approve, Then Shop: Before you start home shopping, get pre-approved for a home loan. This will help you understand what price range you can be shopping in. Additionally, when you have pre-approval, it shows the seller that you are a serious buyer, giving you significant negotiating power.
Factor In the Down Payment: Remember that in order to get into a home, you must put a down payment on the house BEFORE you can get a loan. Typically a down payment is about 20% of the total home cost. So if you are purchasing a $200,000 home, you should have $20,000 ready for a down payment. There are specialized loans such as VA and USDA that require no down payments for qualifying individuals. Remember though, the higher your down payment, the lower your monthly cost and the less you pay in interest.
Minimizing Closing Costs: Typically closing costs will be 3% of the mortgage principal amount. On a $200,000 mortgage that means you will have about $6,000 that must be paid when you get the keys to the home. Rather than pay this out of pocket, consider offering the seller $5,000-$6,000 more, contingent that they pay the closing costs. This is perfectly acceptable and a very common strategy to help save you out of pocket.
Buying a home for the first time is an exciting decision. If you have other questions as a first time home buyer, contact one of our mortgage brokers. They would be happy to answer any other questions you have.
