If you’re exploring homeownership for the first time, you’ll soon realize how complex the process really is. There’s so much to know before going on this journey, aside from finding a new house you love. There are fees, lending options, and assistance programs you may not know about at this early stage of your journey. And you’ll likely have a host of questions. Before you take any official first steps as a first-time homebuyer, here are some nuggets of advice you can appreciate and take to the bank.
1. Start By Analyzing Your Financial SituationBefore packing boxes or bookmarking favorite houses on Zillow, first-time homebuyers need to spend some quality time with their own finances. You more than likely have a reasonable idea of what you can afford in a monthly mortgage payment. But there’s so much more to consider. Lenders will need to verify proof of your mortgage eligibility in the form of past tax returns, working history, and paystubs, as well as current debt-to-income ratios. This means you’ll need to assess your credit history and know how current balances might affect your ability to secure a mortgage.
2. Controlling Your Credit and Saving for a Down PaymentFirst-time homebuyers need to know their credit scores and be mindful of controlling their credit positioning. If you’re going to buy your first house, now is not the time to finance a new car or quad since these other loans can impact your debt-to-income ratio and potential borrowing power. If you have anything on your credit report that needs to be removed or resolved, handle those before applying for a loan, as well. If you decide you need more time to clean up your credit report, you can also take the time to work on building up your savings. Most lenders require a down payment, which could be upwards of $20,000, based on the price of the home you’re looking to buy. And the more you’re able to have in your reserves, the easier it will be to afford ancillary costs associated with the home buying process, like paying for home inspections, closing costs, and moving expenses.
3. Shop Around for Best-Fit Lenders and Loan OptionsJust as you have the freedom to shop around for a new home, you also have the ability to browse lenders and loan options. Every lender will offer unique perks and require varied requirements. If one bank says no, you might be able to find a credit union or mortgage broker with a better-suited option. Additionally, there are different types of mortgage loans to consider based on your financial situation. And as a first-time homebuyer, this is a critical piece of advice. Find a mortgage loan that aligns with your credit history and your affordability for the long term. Here are some to explore. Conventional Loans: Talk to your bank about a conventional loan. These loans can allow you to purchase a home with as little as a 3% down payment. FHA Loans: FHA loans tend to be less restrictive on credit scores, with some qualifying with a 580 score. VA Loans: These loans are exclusive for veterans or those with ties to military service and can offer 0% down payments. USDA Loans: These loans provide 0% down payments but usually apply to rural or suburban home purchases, based on household income thresholds.
4. Explore First-Time Homebuyer Grants and Assistance ProgramsThere are plenty of first-time homebuyer assistance programs you’ll definitely want to tap into if you can. Many offer grants to help with down payments or closing costs. Others make homeownership easier with less strict eligibility requirements, based on specific household financial eligibility points. And you can start by visiting the U.S. Department of Housing and Urban Development resources online. You are officially considered a first-time homebuyer if you:
- Never owned a principal residence
- Are a single parent who maybe only owned a property with a former spouse
- Are a displaced homemaker who only owned property with a former spouse
- Only owned a residence that was not permanently affixed to a foundation
- Only owned a residence that didn’t meet state or local building code compliance benchmarks