Buying a house is one of the most exciting moments in your life. But it can also be intimidating.
We want to help curb some of those fears. Here are seven tips to help you get into your first home.
Decide how much home you can afford
Before you start saving, shopping, or packing, you need to know how much home you can afford.
The best way to figure this out is with the help of a mortgage calculator. These online tools take into consideration your purchase price, your down payment, and current interest rates. Some mortgage calculators let you work backward by letting you plug in your desired monthly payment. Fool around with these calculators for a while to determine a baseline of what you can afford.
Don’t forget, though, that these tools won’t typically include other monthly expenses like home insurance and property taxes. That brings us to our next point …
Start saving early — and more than you think you’ll need
If possible, try to start saving as far ahead as possible. The more you save, the more you can put into a down payment that will lower your monthly mortgage costs.
You should also plan on saving more than the actual price of the home. Once you close and make your down payment, you’ll need to plan on paying around 5% of the total cost of the home in closing costs as well. You’ll also want to furnish your home and make any immediate repairs or renovations.
Improve your credit score
Here are a few quick ways to boost your score:
- Make payments often and on time;
- Pay more than the minimum balance due;
- Don’t max out your credit;
- Pay off as much debt as possible.
Do not, however, make any major purchases in the months leading up to your home purchase. That could increase your debt-to-income-ratio and make lenders suspicious.
Choose the best mortgage for you
We know you’re eager to start looking at houses — and judging some of those interior decoration choices — but there’s still more prep work to do. Stick with us, we promise it’ll be worth it!
Before you pick a home, you’ll need to pick a mortgage type. There are a few options, so work with your lender to decide which one works best for you.
Amy Moser, vice president of mortgage services at Mountain America Credit Union, advises, “Start preparing ahead of time to make sure everything is in order to be able to make this big purchase. Do what you can to improve your credit score, and start cutting back in your budget to save up more and more for that down payment. Every little bit counts.”
Your basic options include the following:
- Fixed-rate home mortgage: Your interest rate won’t change over the life of the loan.
- Adjustable-rate home mortgage: Your interest rate could change a few years into your loan.
- Federal Housing Administration loan: You can get a loan with a low down payment or low credit score.
- Department of Veterans Affairs loan: Veterans and their families can get a flexible, low-interest loan.
Get a pre-approval letter
Once you have an idea of which loan is most beneficial to you, you can start shopping around for pre-approval letters. Aim to get two or three pre-approval letters so you can compare rates.
Once you pick one, send it to your realtor. Think of this as your golden ticket to entering the home-buying market. This letter shows realtors and buyers agents that you’re eligible to buy and makes you a serious contender in multi-offer situations.
This will require a hard credit check, so don’t be shocked when your credit score changes. It should bounce back within a few months.
Stay strong when it comes to your budget
Now you can start shopping for homes! Self-control is key, here, though.
Adjust your saved home searches to fit well within your budget. Try not to tempt yourself by going outside your desired price range, it’ll only make you want to overspend. Work with your realtor to set stern price limits when you go to open houses.
Do, however, explore homes in areas you might not look otherwise. Sometimes, you’ll only need to go a few miles away to get more bang for your buck.
Don’t skimp on inspections or insurance
Finally, be sure to budget for inspections and insurance.
You can get a number of inspections done once you’ve gone under contract. Most people recommend looking into meth, mold, radon, and lead levels in your home. You’ll also want a general inspection to be completed — this will tell you if the home is generally safe and what kind of repairs you’ll need to make.
Insurance is usually required, but it’s best not to go with the cheapest, quickest option. Look for one that best suits your area. Most insurance policies are weather-based, so find a policy that will tailor to your specific needs.
Both inspections and home insurance will give you peace of mind in your new home.