Buying a home is always an exciting proposition. But it’s safe to say that this will be one of the most difficult financial decisions to make. That is why it’s important to understand how it all works.
More so than that, it’s important to understand a few tips and tricks that can smoothen the process. With all that said, we’re here to give first-time homebuyers financial tips to do just that. Don’t go anywhere as we’ll start right now.
Get Ready To Save Early
This is never an easy thing to do. Every person has different financial obstacles that can pose a huge problem when it comes to saving money to buy a house.
But it’s important to have this thought sitting in the back of your mind just in case. Saving early opens a huge new venue that can really come in handy when at the right time.
Let’s assume that you’ve been saving money for the past couple of years. That money could be enough to eliminate a huge financial obstacle. The three main costs to consider when buying a house for the first time are the down payment, the closing costs, and the move-in expenses.
The money that you’ve saved could be enough to cover for either one of these if not more.
Decide On A Budget
Budgets are always helpful because they keep us in check. This is even more important in the home buying process. A budget will make sure you have enough money to spend without going overboard.
Going over your budget could prove to be a costly mistake. That is why a great financial tip is to simply have a budget in place and make sure to stick within it.
Improve Your Credit Score
Credit score is very important in the context of buying property. For first time home buyers, an individual’s credit score plays a vital role in determining the chance of obtaining a mortgage loan. Thus, making sure that your credit score has a good rating will increase your chance of getting a mortgage loan.
If you have bad credit, then there are a few ways to improve it. For starters, and this is the easiest way, you need to pay your bills on time. This eliminates debt, which can sometimes be instrumental for getting approved for a mortgage loan.
Secondly, never close any credit cards as closing will only decrease the portion of available credit. The less available credit you have, the lower the credit score. And a lower credit score makes it harder to get approved for a loan.
And thirdly, keep your credit utilization low. When someone talks about credit utilization, they’re referring to how much credit can you use. If you can use $5,000 and you’ve used $2,500, then your credit utilization score is 50%.
By using less credit, you are increasing the chances of being approved for a mortgage loan.
Get Preapproved For A Mortgage Loan
Once you’re confident that you can get the loan, it’s time to get preapproved for that loan. This is oftentimes the first choice for many first-time homebuyers as it eliminates a few issues.
For starters, getting preapproved shows you mean business. Whenever going house searching, it tells the seller that you are serious about buying their property.
This puts you ahead of the competition. Instead of having to wait to get preapproved before you go house searching, you skip it by doing it beforehand.
If the desired home goes between you and another buyer, you will have the edge over the other buyer since you’re preapproved and they’re not.
To get preapproved, however, well that’s an entirely different type of cookie. For starters, you will have to talk to a lender (a bank) and they will need to verify your financial information. For that, you will have to submit your loan for preliminary underwriting.
The lender will then look over your credit score and other information and decide whether you can take a loan.
Talk To More Lenders
A huge mistake to avoid making is going with the first lender that gives you the green light. The reason why this is a mistake is that you’re missing out on potentially saving thousands of dollars. But what do we mean by this?
If you talk to two lenders, then you will know exactly what each lender has to offer you. There is a large chance that both lenders will give you different rates and a different deal. But if you talk to multiple lenders, well then you have more than one option.
Don’t Think Too Much Over the Down Payment
Everyone asks for a down payment. A down payment is a way for lenders to eliminate risk. Everyone can agree on buying a house and everyone will agree on a price.
However, when you strike a deal with the lender, well you need to come good on that deal otherwise you’re just wasting the lender’s time.
One way for lenders to make sure you mean business is to put down a down payment on your mortgage loan. But it’s a widely considered myth that you’re supposed to put 20% out of the total mortgage loan. This is, like we said, a myth.
While it was true once upon a time that 20% is what lenders ask, sadly that’s no longer the case. You can put as little as 3% down for a mortgage loan. While you will have to pay for other things, such as private mortgage insurance, the 17% difference is a huge sum of money.
It is estimated that the average down payment lenders ask is 12%. So if you’ve planned for 20% instead of 12%, well that can put you buying a house for years.
Always discuss what the lenders ask and always ask about the down payment.
Finishing Thoughts
Being savvy with your money can really help when the time for buying your first home comes. And while there are dozens of financial tips we could give you, these are the ones you should be focusing most on. We hope that some of our tips help and we hope that they’ve made a difference when it comes to buying your first home.