The home buying process is one of the single most important moments of your life. Be prepared and knowledgeable before beginning. In this article, we will go over 10 important tips for first-time homebuyers in 2021. These tips will help you understand the home buying process, save money, and close on your first home. Here’s what we go over:
Before buying tips
Mortgage loan tips
Home shopping tips
Let’s dive in.
Before Buying Tips
1. Saving Money
Down payment: Your down payment depends on what type of mortgage loan you choose. Conventional loans for first-time homebuyers with good credit can be as little as 3%-5% down. This means if you buy a home for $300,000, you’d have to put down a down payment of 3% which is a total of $9,000.
Closing Costs: These are fees that you will have to pay to finalize your mortgage. Closing costs typically cost from 2% to 5% of your loan amount. You pay this at the end of the home buying process.
2. Build a Home Budget
Decide how much you can afford to spend every month on a home. A mortgage should not exceed more than half of your monthly income. Consider estimating your budget by using the debt-to-income ratio.
3. Have a Strong Credit Score
Your credit score determines if you qualify for a mortgage. It also affects the interest rate your lender will offer. Here are some credit tips to qualify for a home:
Pay your bills on time, keep your credit card balances low.
Don’t close any credit cards, this can lower your credit score.
Track your credit score regularly to know where you stand.
Mortgage Loan Tips
4. Understand Your Mortgage Options
There are several mortgage loans available for first-time home buyers. All have a different down payment and eligibility requirements.
Conventional Loan: are insured by private lenders, not by the government. To qualify for a conventional loan you need a higher credit score, a low debt-to-income ratio (DTI), and a downpayment between 3% - 20%. First-time home buyers typically pay a downpayment of as little as 3%. Click here to learn more about Conventional loans.
FHA Loan: is insured and guaranteed by the government via the Federal Housing Administration (FHA). FHA loans have less-restrictive qualifications, which can make it a good choice if you can’t make a large down payment, have a lower credit score, or both. FHA loan down payments can be as low as 3.5% for first-time home buyers. Click here to learn more about FHA loans.
USDA Loan: are guaranteed by the U.S. Department of Agriculture. USDA loans are for rural homebuyers and usually require no down payment.
VA Loan: is provided by private lenders and backed up by the U.S. Department of Veterans Affairs. This mortgage loan helps active duty service members, U.S. veterans, and widowed military spouses. VA loans usually require no down payment. Click here to learn more about VA loans.
5. Research First-time Home Buyer Down Payment Assistance Programs
Many states, cities, and counties offer first-time homebuyer programs that can assist you with down payment and closing costs. Search for programs that might be available to you. Tax credits are also available through some first-time homebuyer programs.
6. Choosing the Right Lender
Interview loan officers when deciding which mortgage lender to go to. Having the right loan officer by your side can make the home buying process smooth and simple. They will be by your side every step of the way and provide you with a pre-approval letter. This indicates that you are qualified to borrow a certain amount of money from the bank and now you can go house hunting within that amount.
7. Get a Pre-Approval
A mortgage pre-approval is a lender’s offer to loan you a certain amount under specific terms. Having a pre-approval letter shows home sellers that you are a serious buyer and ready to take the next steps. A pre-approval is necessary before going house shopping. Your loan officer will base the pre-approval amount on your credit score, income, assets, and debt. The pre-approval letter is valid between 30 to 90 days, depending on your lender.
Home Shopping Tips
8. Choose a Real Estate Agent
Just like loan officers, you want to interview different real estate agents. Ask close friends and family who their realtors were and how the experience was. You want to find an agent that will always put your needs first. When looking for an agent, consider asking them for some home buying tips and how the current market is. This can help you get a better understanding of the buying process while also deciding if an agent is right for you.
9. Choosing the Right Home for you
Make a pros and cons list of the different types of homes you’re looking for. Would you rather have a closer commute or a bigger home in the suburbs? Would you prefer a single-family home or townhome? Maybe a fixer-upper you can personalize to your liking? These are questions you would want to ask yourself when searching for a home. Don’t forget to stick to your budget. The pre-approval letter will show the highest amount you can loan but that doesn’t mean you want to use it all. Think about your long-term needs whether it’s a starter or forever home.
10. Pay for a Home Inspection
A home inspection is a must, this is a thorough assessment of the entire home. From structure to mechanical systems. A professional inspector will look for any potential problems the home may have. This will inform you of any below surface-level problems so you can decide if this is the right home for you. A home inspection can vary in price, so be sure to get referred and quoted before choosing an inspector.
Want to learn more?
These are the top 10 tips for first-time homebuyers in 2021. Have any other questions about the home buying process? Contact us and we will answer your questions right away. For more mortgage tips, click here to follow us on Instagram! Here you will find daily home buying tips, credit advice, Q&As, and much more. We hope this helped you get a better understanding of the home buying process and if you have any questions, don’t hesitate to reach out. Thank you.