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First-time homebuyer guide

What you need to know before purchasing your first house.

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Buying your first property is among the biggest decisions you’ll make in a lifetime. And if you get your home at a good price with strong mortgage rates and terms, it can also become an investment that grows your money over time.

8 tips for first-time homebuyers

While buying a home is certainly an exciting time, there’s a lot at stake. Remember these tips to keep you focused and save you money as you go through the various stages of homebuying.

1. Focus on saving money and paying off debts

Before you start shopping around, work on getting your financial house in order. Saving for a down payment and paying off debt can put you in a stronger financial position when you start submitting loan applications. Lenders consider your level of debt and the size of your loan when determining your rate.

2. Check your credit report

Focus on improving any blemishes a lender might look down upon, such as high credit card utilization or only making minimum payments. Avoid making large purchases and taking on new debt when you’re house hunting. Sometimes creditors make mistakes, so look for and dispute any errors with the credit bureau.

3. Figure out how much house you can afford

Your mortgage payment is made up of more than just the principal and interest. Consider other fees that you could pay, on top of your mortgage:

  • Homeowners insurance to protect your home from damage or an accident.
  • Taxes can vary based on where you live.
  • HOA or administrative fees, depending on the neighborhood you choose.
  • Furniture to fill the home.
  • With less than 20% as a down payment, you’ll pay the bank private mortgage insurance (PMI).

4. Shop for lenders and get a preapproval letter.

Speak with several lenders, comparing rates, fees and proposed closing costs. When you’ve found the right fit, work with your lender to obtain a preapproval letter, which can give you a leg up when making offers. But just because you’re approved for a certain amount doesn’t mean you should take it all. Take a hard look at your finances and only borrow what you can afford.

5. Think about what you want and need in a house

Think about your future, not just where you are in your life right now. Is there room for your family to grow if that’s in the plans? Is the neighborhood family-friendly? Are you in a growing area that’s likely to boost property values?

6. Make an offer and negotiate

Once you’ve found “the one,” it’s time to make an offer with the help of your real estate agent. If the seller doesn’t accept your first offer, don’t be afraid to counter. If you can’t reach a deal you’re comfortable with or if you feel the seller is asking more than market value, move on.

7. Get an inspection

Even if the house looks like it’s in pristine condition, you never know what could be lurking behind the walls or on the roof. A home inspection can reveal issues with the house, helping you negotiate or giving you good reason to walk away.

8. Don’t let emotions get in the way of a sound financial decision

If you’re in love with a house but the inspection reveals a leaky roof and major HVAC issues, ask yourself if the high cost of repairs is affordable and worth it. Do the math, look to the future and realize that there’s always another house.

How do I compare mortgages as a first-time homebuyer?

Start with positioning yourself for the strongest rates and terms you’re eligible for. Consider your current finances, including how much you’ll be able to put down.

Once you have a sense of a realistic budget for your home, consider the ways you can save more on your mortgage:

  • Look for a mortgage with lenient requirements. If you’ve saved up less than 20% for a down payment, narrow your search to lenders that advertise low-deposit mortgages.
  • Ask a parent to guarantee your loan. If your parents own property, your lender may allow them to secure your mortgage with their equity, allowing you to put down less than 20% up front. Make sure they understand the risks that include losing their own home if yours ends up in foreclosure.
  • Take advantage of first-time benefits. You may be eligible for tax breaks and even lower-deposit mortgages as a first-time homebuyer, depending on where you live and what you’re buying.

How much home can you afford?

To get an idea as to how much you can borrow, enter your household’s income, the number of your dependents and any existing debts into our calculator.

The calculator estimates your expenses using a standard cost-of-living index, giving you a home cost you likely could afford.

What should first-time homebuyers look for in a loan?

If your lender doesn’t offer specific loans for first-time homebuyers, you may still be able to suss out an ideal mortgage by looking for:

  • A low APR. Your annual percentage rate (APR) affects your monthly payments. The APR you get is determined by the Federal Reserve, and other factors like the size and length of your loan and your credit score. To get a lower rate, shop multiple lenders and check out federal loan programs you could qualify for. As of May, 2020, APRs for USDA, FHA and VA loans can be as low as 3.2%.
  • Down payment requirements of 10% or less. Saving a down payment is often one of the hardest challenges for first-time homebuyers, especially if you need to save the traditional 20% of a property’s value to qualify for a loan. Thankfully, you could qualify for loans that require 3% to 5% down. But you’ll need to pay private mortgage insurance for any down payment less than 20%.

Bottom line

Buying your first home is an exciting process, but positioning yourself for the strongest mortgage takes time and research. Read about your financing options and compare lenders to find the best rates and terms you’re eligible for.

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