Buying a home for the first time is thrilling, but it’s also a little confusing. From credit checks to interest rates to mortgage types, there’s a lot to decipher when you start shopping for a home loan. You need to get your finances in order, but that’s not always as simple as it might seem. Here’s how to prepare for buying your first home, plus a few hacks to get you the best deal.
First Steps for First-Time Homebuyers
While there are plenty of hacks to help you out with home buying, first we’ll take a moment to cover the basics. You need to know your credit score, which indicates how much of a risk you are to mortgage lenders. The higher your score, the better, so knowing where you are can help you work toward preparing for a home purchase. According to US News, a good credit score is between 670 and 739. You can check your credit score for free once every 12 months, per the Federal Trade Commission. Free apps and credit reports are also available, with some financial institutions offering regular updates.
Once your credit is in a decent place, you need to find a real estate agent you can trust. See who is available in your area and decide what your must-haves are for your home. At the same time, start saving up for a down payment — in many cases, you’ll need as much as 20 percent of the home’s purchase price to secure a loan.
Personal Finance Hacks for Home Buying
After you have the basics covered, start thinking about your financial plan for obtaining a mortgage. You’ll need to shop around for the best mortgage rate, but your options will be limited if your credit is poor or if you’re over-extended. These personal finance hacks can help.
Improve Your Credit Quickly Unfortunately, lower credit scores mean higher interest rates and more costs for mortgage insurance. While you may be able to get into a home, you end up paying more over the long run. So, how can you make smarter money moves and improve your credit score? The less debt you have, the higher your credit score rises. Therefore, paying down existing debt is the best way to improve your credit. Aim to carry a balance of less than 30 percent on any credit card, but also pay off the balances whenever possible.
Look for First-Time Homebuyer Programs
Depending on where you live, you may find local grants or other programs to help you secure a mortgage. Federal programs like the Federal Housing Administration (FHA) cover every state in the US and offer lower-income borrowers lower down payment options.
Another federal program under the United States Department of Agriculture (USDA) offers low-income applicants a zero-down mortgage option. USDA loans work for rural properties and eligibility depends on specific income thresholds.
Check out the programs on your own or consult a local mortgage lender for application assistance and to find out what’s available in your area.
Don’t Be Afraid to Negotiate
Even when you’re navigating a home purchase for the first time, you shouldn’t assume everything is set in stone. There’s often room for negotiation when you put in an offer on a home, and automatically agreeing to pay the asking price might cost you.
Especially if a home inspection turns back costly issues, you can negotiate a reduction in the purchase price. In many cases, the seller will respond with a counteroffer. It’s entirely possible that they will reject your offer, but it typically doesn’t hurt to try. You can also negotiate sale terms like the seller paying for part of or all your closing costs, home warranty premium, and cosmetic or structural updating, Forbes explains.
What’s Next for First-Time Homebuyers?
Don’t let the homebuying process intimidate you. With a knowledgeable team behind you — including a trusted real estate agent and mortgage lender — you can get a great deal on a new home easier than you might expect.
Authored by George Miller