Buying your first home is an exciting process, but without organization it can be stressful. When you are considering whether the time is right to shop for a home, you’ll want to be prepared for the process. Before you begin your hunt is the perfect time to figure out your financial picture and do your research on the housing market you’ll be entering. Here’s a few handy tips to help you get started.
Save For a Down Payment
In most cases, you’ll need to have a down payment ready when you purchase a home. Commonly, 20% of the home’s sale price is considered the standard amount for a down payment, but mortgages are available for a down payment as small as 3%. Smaller down payments may make home ownership more viable for some, but they also increase your monthly mortgage payments and you’ll pay more interest on your mortgage over time. With a larger down payment, you’ll pay more upfront, but will have smaller monthly payments and less interest to worry about.
Currently, there are many programs that help first time home owners buy a house by offering low down payments. Check your state for first time home buyer initiatives you can take advantage of. For veterans and those in the military, mortgages may be available with no down payment. Leading up to your home purchase, commit to saving towards your down payment and have an idea of how much you will be able to comfortably put down on a new home.
Compare Mortgage Rates
When it comes to buying a home, you’ll always want to pay attention to the percentages. A difference of 1% will translate into thousands of dollars over the life of a loan. Before you look for a home, shop around for the best mortgage rates you are eligible for. A good starting point is a bank or credit union you have worked with over time, but don’t rule out other lenders. When you do your homework looking for the best mortgage rates, you’ll be taking the stress out of shopping around for the right lender while you are trying to secure financing.
What sort of mortgage is right for you? If low monthly payments are your priority, opt for a 30-year fixed option. For those with some financial flexibility and a desire to pay the least amount of interest, a 15-year fixed mortgage will offer a quicker payoff and less interest paid overall. Buyers should enter into adjustable rate mortgages with caution – low initial interest can raise dramatically after a few years, so it is best to only do this if you have a plan for managing increases to your monthly payment.
Once you’ve found a lender you want to work with the next step is to get pre-approved for a mortgage. Being pre-approved for a mortgage means that if there are no major changes to your financial picture before you close on a home, you’ll be able to access a mortgage from them at a locked in rate. When you get pre-approved for a mortgage, you will also find out how much the lender is willing to lend you. Keep in mind that this figure is a maximum amount and when shopping for a home it is best to look for something you can comfortably budget for.
Your pre-approval and loan interest rate will depend greatly on your credit score. During the time you are saving for a home, work hard to make sure your credit score is in good shape. Tackle debts or other issues that may pull down your credit rating. In the months leading up to being pre-approved for a mortgage and closing on a home, don’t make big purchases or add new credit accounts that could dramatically change your credit score.
Set a Realistic Budget for Yourself
Use a housing calculator to figure out how much you can afford – and stick to it while shopping for a home. Take into account the mortgage amount and interest rate you are eligible for. Anticipate closing costs that can be as much as 5% of your home’s price. Don’t forget to take other costs associated with your new home into consideration – with a new home will come bills for property tax and home insurance, as well as upkeep and repair costs.
While the initial financial planning for a new home is daunting, nothing could be more rewarding than a place you can truly call home. We see it every day at Fawnridge Realty when we help first time home buyers find the house of their dreams in beautiful, serene Lake Carroll, Illinois.