Buying a home can be exciting and terrifying, all at once. And for first-time buyers, you can probably multiply those feelings by a hundred.
According to Wendy Highfield, of Distinct Realty Group in Denver, Colo., “Now is such a great time to purchase a home, especially with the low rates and personalized loan programs available to help families with unique financial backgrounds.”
My best advice for any homeowners, but especially first-timers, is to take the time to prepare. Not only will you be ready when the time is right, you’ll be more confident.
1. Boost Your Credit Score. Your credit score(s) will play a key role in your mortgage approval and the interest rate you’ll pay. Order your credit reports now from AnnualCreditReport.com, a free service authorized by federal law. Go over each report, dispute any errors, and pay off as much debt as possible. You want to create a big gap between your overall available credit and the amount you are using at any given time.
In the meantime, avoid big-ticket items such as cars or furniture and don’t apply for new credit. Triggering an inquiry or acquiring more debt by buying something can have a dramatic effect on the mortgage application and approval process.
2. Pull Together a Downpayment. Plan on needing between 20 and 30 percent down payment to qualify for the best mortgage rates. There are numerous programs available now, through FHA for example, that allow a smaller downpayment. Just beware that your interest rate will be higher and you will be required to carry PMI (private mortgage insurance), both of which will increase your monthly payment significantly.
3. Find the Best Real Estate Agent. “Look for a buyer’s agent who specializes in working with buyers and who offers you referrals from recent happy clients,” advises Wendy. “Call those referrals and find out all you can about their experience with this agent.” Your friends and family will be a great resource for finding a good Realtor.
4. Get Pre-Approved. Knowing what you can afford, what you qualify for, and what type of loan you want can help you find the best deal when you’re ready to apply for a mortgage. To get started, research the differences between conventional and unconventional loans and use a mortgage term comparison calculator to get an idea of the cost. Find a great online mortgage calculator to get used to what monthly payments will look like. When you’re ready to shop for mortgages, use an online calculator like the Get a Mortgage Quote tool at Realtor.com. This will allow you to see current rates and get quotes from lenders in your area.
5. Find the Right Home. Start reading and researching as much as you can as soon as you can. Use online resources like Redfin.com and Zillow.com. Don’t wait until you’re ready to shop to start looking at homes. Start early by researching neighborhoods in your target city and viewing homes online to get an idea of pricing. Once you’re ready to shop, you’ll have a much better idea of what you want, where you want to live and what you can afford.
Take your time, prepare well. Then don’t let anyone talk you into anything that makes you feel uncomfortable. One thing worse than not owning a home is getting in over your head in a house you cannot afford.