“The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.”

 

 

Buying a home for the first time tends to be a learn-as-you-go process. But it doesn’t have to be. Even though everyone’s experience purchasing their first home is unique, you can prepare yourself for what’s to come by learning what helped others and what held them back. Before you embark on your own home buying journey, take a look at some of the most important do’s and don’ts to help you get on the right track. 

Do: Check Your Credit

Before you even start to look at homes, it’s wise to ensure you’re financially prepared to buy one. To begin, check your credit score. Your FICO® Score is one of the major factors that affect the type of loan you qualify for and the interest rate you secure.

Many credit reports contain erroneous data. If one exists, it can lower your credit score and cost you thousands of dollars, or even keep you from getting a loan. With the same down payment, a mortgage with a 679 FICO score can cost a full point more than the same loan with a 680 score. That’s an extra $3,000 for a $300,000 loan. With less than 20 percent down, the lower credit score will also see higher costs for Private Mortgage Insurance, too.

You can get your credit report for free from AnnualCreditReport.com and it’s a good idea to pay the nominal fee to get your FICO credit score as well. Your FICO score will give you a better idea of how mortgage lenders will evaluate you, and you may be able to correct errors and raise your score a few points before applying for your home loan.

 

No matter where you stand, there are steps you can take to boost your credit score quickly!

 

  • Make timely payments on your accounts – rent, car loan, cell phone, credit card, etc.
  • If you have debt on multiple credit cards, reduce them to a 30% credit utilization or below.
  • Or you can transfer all of it to a single credit card with the lowest possible interest.
  • You can also ask for a credit limit increase or open a new card and maintain a low balance, which will improve your spending ratio and bump up your score.

 

If you’re not sure how strong your credit is or if it mortgage ready you can schedule a credit consultation with Apex Credit & Real Estate.

Do: Use a Mortgage Calculator

Your lender can tell you how much home you qualify to buy, but only you know what payment you can comfortably afford. It’s rarely a good idea to leverage your income to the maximum since it leaves no room for error or any change in plans or income stream. A comfortable payment, rather than a maximum one, might allow you to cut your income, go back to school, start a family, retire early or keep taking expensive vacations. A mortgage qualification calculator can show you how a comfortable payment translates to a home purchase price. Then, you can refine your search to affordable properties that won’t break your budget.

Do: Shop for Your Mortgage

Lender offers can differ on a 30-year fixed rate mortgage by nearly half a point. This is why it is important to do your research! Yet checking online interest rates is just the beginning. You will need to actually contact lenders and get Loan Estimate disclosures (formerly called the “Good Faith Estimate of Closing Costs”), which are actual interest rate and fee commitments from lenders that they must honor. Finally, don’t be afraid to ask lenders or whatever financial institution you are a member of to match or beat rates. This is a lifetime investment you might as well negotiate the best deal possible.

 

Don’t: Give Everyone Your Social Security Number

Once you have your credit score, give that information to lenders when shopping for a loan. Be cautious when providing your Social Security numbers and other personal data; some lenders may ask for these things in order to verify your credit score, but if you’re not actually applying, they should be able to provide basic data about the loan to you based on the verbal information you provide. If you do allow lenders to pull your credit report, it’s a good idea to do this only while you are actively shopping for your loan; multiple inquiries within a short time frame won’t hurt your credit score, but spreading inquiries out over a number of months may.

Do: Get Pre-Approved for Your Purchase

The pre-approval process is a formal analysis of your financial situation. To get pre-approved for a home loan, you’ll be asked for proof of your income and assets. You’ll also need to have your credit pulled. In the end, you’ll get a dollar amount that represents how much you can afford to spend on a home. Moreover, you’ll be given an approval letter, providing you with proof that you have the funds necessary to purchase the home you ultimately make an offer on.

Many first-time buyers get so excited by the prospect of finding a home that they don’t think to check how much house they can afford before starting their search. You must get pre-approved for a home loan at the outset of the home buying journey, so you don’t lose any time looking at homes outside of your budget.

More importantly, getting pre-approved early on will give you a better chance of getting an offer accepted because sellers will know you’re a serious buyer.This can put you in a stronger bargaining position than your competition for a desirable home.

 

It is recommended to attempt to get pre-approved prior to 6 months of your purchase goal date just in case the lender requires you to increase scores, save more money or reduce debt, this will allow you time to do so.

 

Don’t: Cave In to Pressure

Don’t sign anything you don’t understand or feel uncomfortable with. Ask questions and expect answers — and if you don’t understand them, ask for better explanations. Don’t let a real estate agent, lender or anyone else who stands to make money from your purchase push you into anything. It’s you who will be living in and paying for that home for a long time to come.

Do: Save More than You Think You’ll Need

You need a down payment, which can range from as little as nothing (for a USDA or VA loan) to 10% or 20% for conventional financing. But that’s not all. You’ll still have to pay loan closing costs which could total about 4% of the home’s purchase price. There are also other items, such as the first year of homeowner’s insurance or funding escrow accounts for property taxes that will eat up available cash. Then there are also reserve requirements — many lenders require borrowers to have enough in the bank to pay their mortgage for at least two months if they had an interruption in income. Furthermore, getting into your new home may require you needing to make deposits to utilities and cable companies and your home’s maintenance clock is always running, too, so remember there’s never to much money saved when becoming a homeowner.

Don’t: Make Big Changes

Don’t change jobs before you buy your home (unless you’re getting a raise) and don’t move money around. Lenders will require you write an explanation for any transaction over $1,000 and may possibly deny your loan. The same goes for making large purchases before buying, especially if you’re financing them. It can blow your debt-to-income ratios and drop your credit score, jeopardizing your approval.

Do: Get Your Financial Paperwork in Order

When you apply for your mortgage, the loan application will be reviewed with a fine-toothed comb. Anything you claim on the application will be verified and must be documented, including your income, any assets you are using for your down payment and closing costs and those for reserves. You’ll need recent pay stubs, checking, bank and brokerage account statements, tax returns and possibly more — and if the source of your down payment is a gift from family or others, you’ll need a gift letter from the donors (preferably notarized).

Do: Find A Real Estate Agent

 Although some buyers decide to try to go through the process alone, you should absolutely find a real estate agent. Just as a mortgage banker guides you through the home financing process, a real estate agent will guide you through finding and buying your new home. Right from the start, an agent will work to understand your needs and identify neighborhoods where you can find the best value. Not only will you find out about homes that match your wish list, but you’ll also be able to tour them much more easily with an agent coordinating the showings.

Your agent will be your advocate, from helping you evaluate homes to making an offer and negotiating the best price for you. As a first-time home buyer, having an expert at your side will make your experience far less stressful and help you avoid making any mistakes. And the best part? You don’t pay a thing. Agents’ commissions are paid out of the purchasing price of the home, so their fees are actually paid by sellers. 

Do: Consider Home’s Resale Value

If you’re like most, the first home you buy won’t be your last. Whether you end up staying for a couple years or more than a decade, it’s nice to build up some equity, so you have more money to put toward a new home after you sell. The best place to start when judging potential resale value is a home’s location. How are the nearby schools? Is there a downtown area within walking distance? Are there plans to develop the area?

As for a home itself, features like three bedrooms, two bathrooms, walk-in closets and garages are all signs that a home will be desirable to buyers when you sell. There’s no sure-fire way to know a home will turn into a gold mine. Just keep resale value in mind and get your real estate agent’s input as you weigh the pros and cons.

Don’t: Nitpick

It can be tough to see all a home has to offer when you’re staring at leopard print wallpaper in the master bedroom. But as unsightly as one, two or even 10 features may be, don’t let them deter you. You can always paint walls, install new flooring or hire a landscaper to refresh the front lawn and backyard without breaking the bank. 

Plus, a home with a few flaws can be an opportunity. If the property has been sitting on the market longer than anticipated, the seller may be willing to come down on the price. Instead of deciding to nitpick, check with your real estate agent to see if those little imperfections could furnish you with extra negotiating power.

 

Kera Butler

President -Apex Credit & Real Estate

Hi! My name is Kera I am passionate about helping families achieve the American Dream.

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