Doing Your Homework: Tips for First-Time Home Buyers
Author: Jim McKinley
Buying a home for the first time is a nerve-wracking experience for most people. It’s most likely the largest single investment they’ve ever made. The last thing you want as a first-time home buyer is a process fraught with nasty surprises and an expenditure that’s well beyond your means. If it’s your first venture into the housing market, you might as well take care to make it a positive (and educational) experience. That’s well within your power as long as you do your financial homework so you’re making responsible decisions each step along the way.
Know your credit status
This is one of the most important factors in the home buying process. A good credit score means you’ll be able to get a home loan at an interest rate that’s in your favor and afford the home you really want. Go over your credit report very carefully, checking for mistakes, unpaid balances or accounts that are in collections. One thing that lenders will focus on is your credit utilization rate, meaning the amount of credit you’re using compared to your income. The higher the rate, the less attractive you’ll be as a borrower. If you’re a contractor, bear in mind that you’ll probably need to show at least two years’ of earnings to be considered for a loan.
Your budget
If you’re serious about buying a home, you really need to have a solid idea of your monthly budget, specifically, how much you have coming in against what you owe each month. Be honest about it and bear in mind all other expenses after your mortgage payment, as well as the need to save for the unexpected. You may be able to make adjustments to your spending that will make it easier to afford a mortgage payment.
Paperwork
A first-time buyer applying for a home loan will need to provide lots of documents. A lender will ask for proof of taxes and income, as well as recent pay stubs, W2s, and bank statements. Lenders will look very carefully at every detail to get a picture of your creditworthiness, so make sure you’ve got it all together before approaching a lending institution. Having it all together will save you time and make it easier to get a quick answer on your loan application.
Qualifying
It’s a good idea to know how much house you can qualify for. Factor in your debt-to-income ratio and a downpayment, and bear in mind that most lenders want to see your expenses taking up no more than 28 percent of your income. Knowing how much house you can afford will help when it comes to working with lenders, and in focusing your house search. As you look for a house that’s right for you, consider properties that have been foreclosed on, which you can get at a considerably lower price than other houses on the market.
Closing costs
Closing costs can add up to a major expense, so factor them in when shopping around for a lender. Look for one offering the lowest closing costs and remember that you can always negotiate closing costs with a lender. It may also be possible to get a seller to reduce their sale price to help offset closing costs.
Moving
Once the deal is done and you’ve found the house of your dreams, it’s time to find a reputable moving company. Check with the Better Business Bureau and review comments from former customers online until you find one with a sterling reputation and affordable rates. Hiring a professional mover is a good idea because they’re practiced at protecting fragile items, and they’re fully insured.
You can make the home buying experience much less stressful if you have everything you need lined up ahead of time. That means knowing your credit, budget, how much you can afford, and understanding about closing costs. Understanding all your options and rights as a buyer is necessary to ensure your first home buying experience is a positive one.
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