Best Tips for First-Time Home Buyers

A successful homebuying process, like any large job, is all about getting the details perfect from start to finish. These first-time home buyer ideas will assist you in navigating the process, saving money, and completing the transaction. We separated them into four groups:

Tips for preparing to buy

1. Begin saving early.

The following are the most important costs to consider when saving for a house:

The amount of money you’ll need for a down payment will vary depending on the type of mortgage you choose and the lender. Some conventional loans for first-time home buyers with good credit allow for as little as a 3% down payment. However, even a small down payment might be difficult to come up with. A 3% down payment on a $300,000 home, for example, is $9,000. To get started, use a down payment calculator to choose a target and then set up automatic transfers from your checking account to your savings account.

Closing costs are the fees and charges that you pay to complete your mortgage, and they normally range from 2% to 5% of the loan amount. You can negotiate a percentage of your closing costs with the seller, and you can save money on some charges like home inspections by shopping around.

After you’ve bought a home, you’ll need money to move in. Make a budget for immediate home repairs, upgrades, and furniture.

2. Determine the maximum size of home you can afford.

Before you start looking for a house, figure out how much you can afford. The home affordability calculator from NerdWallet can help you figure out how much you can afford based on your income, debt, down payment, credit score, and where you want to live.

3. Examine your credit score and work to improve it.

Your credit score will impact whether you are eligible for a mortgage and the interest rate offered by lenders. Take the following methods to improve your credit score in order to buy a home:

Obtain free copies of your credit reports from each of the three credit agencies—Experian, Equifax, and TransUnion—and challenge any errors that may have a negative impact on your credit score.

Keep your credit card balances as low as possible by paying all of your bills on schedule.

Keep your credit cards active. Closing a card increases the amount of credit you have available, which can lower your score.

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Tips for Choosing a Mortgage 4. Research Your Mortgage Options

There are several types of mortgages available, each with a different down payment and qualifying requirements. The following are the major categories:

The government does not back conventional mortgages. Some conventional loans for first-time home buyers require as little as a 3% down payment.

FHA loans are insured by the Federal Housing Administration and require as little as 3.5 percent down payment.

The United States Department of Agriculture (USDA) backs USDA loans. They’re for buyers who want to buy a home in the country, and they normally don’t require a down payment.

The Department of Veterans Affairs guarantees VA loans. Current and former military personnel can get them. They don’t usually ask for a down payment.

You also have choices when it comes to the length of your mortgage. The majority of home buyers choose a 30-year fixed-rate mortgage, which is paid off in 30 years and has a fixed interest rate. The interest rate for a 15-year loan is usually lower than on a 30-year loan, but the monthly payments are higher.

5. Look into first-time home buyers’ programs.

Many states, as well as some towns and counties, provide first-time home buyer programs that often include low-interest mortgages, as well as down payment and closing cost help. Some first-time home buyer programs provide tax rebates as well.

6. Look into mortgage interest rates and fees.

Request loan quotes for the same type of mortgage from different lenders to compare costs, such as interest rates and possible origination fees, the Consumer Financial Protection Bureau says.

Lenders may give the option of purchasing discount points, which are fees paid up front by the borrower to lower the interest rate. If you have the cash on hand and expect to stay in your home for a long time, buying points may make sense. Use a discount points calculator to make your decision.

7. Obtain a preapproval letter.

A mortgage preapproval is an offer from a lender to lend you a particular amount of money on specific terms. A preapproval letter demonstrates to home sellers and real estate brokers that you’re a serious buyer, giving you the home over other buyers who haven’t taken this step yet.

When you’re ready to start looking for a home, apply for preapproval. A lender will retrieve your credit report and review documentation to verify your income, assets, and debt. Applying for preapproval from multiple lenders to compare rates shouldn’t harm your credit score if you do it within a set time restriction, such as 30 days.

Look over the list.

The finest mortgages for first-time home buyers, refinancing, and more are listed below. Our Nerds did a lot of research.

When looking for a home, choose a real estate agent with care.

A good real estate agent will search the market for homes that fit your requirements and will assist you with the negotiation and closing process. Obtain agent recommendations from other recent home buyers. Request references from at least a few agents and conduct interviews with them. Talk to possible agents about how they have helped first-time homebuyers in your neighborhood and how they can help you find a house.

9. Select the appropriate house and neighborhood.

Given your lifestyle and budget, weigh the benefits and drawbacks of various types of residences. A condominium or townhome may be less expensive than a single-family home, but it will have less privacy due to shared walls with neighbors. When looking for condos and townhomes, as well as houses in planned or gated communities, don’t forget to factor in homeowners’ association costs.

Another alternative is to purchase a fixer-upper, which is a single-family home that needs upgrades or repairs. Fixer-uppers typically sell for less per square foot than ready-to-move-in houses. You may, however, need to set aside additional funds for repairs and remodeling. People who want to buy a home and make improvements can get both loans from one lender.

Consider if a starter home or a forever home will best satisfy your long-term needs. If you plan to establish or extend your family, buying a home with more space may make sense.

Make a comprehensive examination of potential neighborhoods. Choose one with features that are crucial to you, and commute to work during rush hour to see how it works.

10. Adhere to your budget.

You may be pressured to spend more than you can comfortably afford by a lender, or you may feel pressured to spend more than you can comfortably afford to beat another buyer’s offer. Set a price range depending on your budget and stick to it to avoid financial trouble in the future.

Look for properties below your price range to give yourself some breathing room while bidding in a competitive market. 11.

Take advantage of open houses.

In the wake of the COVID-19 outbreak, online 3D home tours have grown in popularity. These tours allow customers to virtually walk through a home at any time of day or night and notice nuances that conventional images miss. They don’t provide all of the details that in-person visits provide, such as how the carpets smell, but they can help you narrow down the houses you want to see.

When touring properties in person, use all of your senses. Listen for noise, smell for scents, and inspect the home’s overall condition, both inside and out. Inquire about the electrical and plumbing systems, as well as the roof’s type and age.

Pay for a home inspection if you’re buying a home.

A home inspection is a detailed examination of the building’s construction and mechanical systems. Professional inspectors check for potential issues so you can make an educated decision about whether or not to buy the property. Here are a few things to remember:

Radon, mold, and bugs aren’t tested during standard inspections. Understand the scope of the inspection and whether or not more inspections are required.

Make sure that the inspector can get into all parts of the house, including the roof and any crawl spaces.

In most cases, the buyer is present at the inspection. By following the inspector around, you can get a better knowledge of the home and ask questions on the spot. If you can’t make it to the inspection, read the inspector’s report very carefully and ask questions about anything that doesn’t make sense to you.

13. Work out a deal with the seller.

You might be able to save money by requesting the seller to pay for repairs up front or lowering the price to cover the expense of future repairs. You might also request that the seller pay a portion of the closing costs. However, keep in mind that the seller’s ability to pay a portion of the closing fees may be limited by the lender.

The strength of your negotiation position will be determined by the local market. When there are more buyers than properties for sale, it’s more difficult to strike a hard deal. Work with your real estate agent to learn more about the local market and come up with a plan.

14. Purchase adequate home insurance.

Before you can close the contract, your lender will require you to purchase homeowners’ insurance. If your home or belongings are damaged by an incident covered by your policy, your home insurance will cover the cost of repairing or replacing them. It also includes liability coverage in the event that you are found to be at fault for an injury or accident. Having enough home insurance will help pay for the cost of rebuilding your home if it is destroyed.