Tips for First-Time Home Buyers
Buying a home is a big decision and can be nerve-racking, especially for first-time home buyers.
Below are some tips to help you through the process, maybe save you some money, and hopefully avoid mistakes.
Mortgage down payment tips
- Start saving for a down payment early
Some individuals may be able to put 20% down, but many lenders now permit less, and some loan programs allow as little as 3% down. However, putting down less than 20% may mean paying for mortgage insurance and a small down payment can still be hefty for some. For example, a 5% down payment on a $200,000 home is $10,000.
Some tips for saving for a down payment include setting aside tax refunds and work bonuses, setting up an automatic savings plan, and using an app to track your progress.
- Explore your down payment and mortgage options
There are many different mortgage options out there, and each has its own pros and cons. If you’re struggling to come up with a down payment, contact one of our experienced mortgage lenders for guidance and additional details for these options:
- Conventional mortgages
- Standards are set by the government-sponsored entities Fannie Mae and Freddie Mac, and require as little as 3% down. Down payments less than 20% will require private mortgage insurance.
- FHA loans
- Loans are backed by the Federal Housing Administration and allow down payments as low as 3.5%.
- VA loans
- Loans offered through the Department of Veterans Affairs for military veterans, active duty, National Guard, and reserves that require no down payment, no private mortgage insurance, and a one-time fee that can be rolled into the loan.
- USDA loans
- Loans backed by the United States Department of Agriculture offer 100% financing for qualified buyers of homes purchased in a rural defined area.
- Other types of loans
- There are many other loan types available, speaking with an experienced lender will help ensure you are making the best decision for your situation.
For the smallest mortgage payment possible, opt for a 30-year fixed mortgage. But, you can get a lower interest rate with a 20-year or 15-year fixed loan if you can afford larger monthly payments.
Mortgage application tips
- Determine how much home you can afford
Before you start looking for your dream home, you need to know what’s actually within your price range. Our new mobile app, BOW Mortgage, has an affordability calculator to help you determine approximately how much home you can afford or you can sit down with one of our mortgage experts.
- Check your credit and pause any new activity
When applying for a mortgage loan, your credit will be one of the key factors in whether you’re approved, and it will help determine your interest rate.
Avoid opening any new credit accounts, like a credit card or auto loan, until your home loan closes to keep your score from dropping.
- Compare mortgage rates
Many home buyers get a rate quote from only one lender, but this often leaves money on the table. Comparing not only mortgage rates but closing fees as well can save you on both rates and fees.
- Get a pre-qualification letter
You can get pre-qualified for a mortgage, which simply gives you an estimate of how much a lender may be willing to lend based on your income and debts. Having a pre-qual letter ready to go makes you a more attractive buyer to a seller and can give you an edge over other potential buyers who haven’t taken this step.
House shopping tips
- Hire the right buyer's agent
Finding a real estate agent that you get along with is important since you will be spending so much time with them and they are helping guide you in the biggest purchase you will make. Your agent should be highly skilled, motivated and knowledgeable.
- Pick the right type of house and neighborhood
You may assume you’ll buy a single-family home, and that could be ideal if you want a big yard or a lot of room. But even if the home is right, the neighborhood could be all wrong. So be sure to:
- Research nearby schools, even if you don’t have kids, as they can affect home value
- Review the local safety and crime stats
- How close is the nearest hospital, pharmacy, grocery store, etc. and what will your work commute look like
- Drive through the neighborhood on different days and times to check out traffic, noise, and activity levels
- Stick to your budget
Shopping with a firm budget in mind will help when it comes time to make an offer so look at homes that cost less than the amount you qualified for. While you can technically afford your pre-qualified amount, it’s the maximum — and it doesn’t take into consideration monthly expenses or problems that arise during home ownership, especially right after you buy.
When you find a home you love, work with your agent to determine the best starting offer, they will have an understanding of what the market looks like and if it is a hot property that requires a higher offer. Don’t let your emotions take over, stick to your budget to avoid a mortgage payment you can’t afford.
- Make the most of open houses
When looking at homes, pay close attention to the home’s overall condition, and be aware of any smells, stains or items in disrepair. Ask questions about the home, such as when it was built, when items were last replaced and how old systems like the air conditioning and the heating are.
If there are other potential buyers viewing the home at the same time, you may want to schedule a visit to get a closer look and ask questions privately.
First-time home buyer mistakes to avoid
With so much to think about, it’s unsurprising that some first-time home buyers make mistakes they later regret. Here are a few of the most common pitfalls, along with tips to help you avoid a similar fate.
- Not budgeting for closing costs
In addition to saving for a down payment, you may want to budget for closing costs as well. You can shop around and compare prices for certain closing expenses, such as homeowners insurance, home inspections and title searches. You can also try to cut costs by asking the seller to pay for a portion of your closing costs.
- Not saving enough for after move-in expenses
Don’t forget about furnishings, appliances, rugs, updated fixtures, paint and any improvements you want to make. Will you use existing furniture or do you plan to buy everything new? You may want to set aside some money to pay for what will go inside the house.
- Buying a home for today instead of tomorrow
While you are looking for a home to meet your current needs, you will also want to consider your future needs. If those plans include starting or expanding your family, you may want to buy a larger home now that you can grow into.
- Passing up the chance to negotiate
A lot can be up for negotiation in the home buying process, which can result in major savings. Are there any major repairs you can get the seller to cover, either by fully handling them or by giving you a credit adjustment at closing? Is the seller willing to pay for any of the closing costs?
- Not knowing the limits of a home inspection
After your offer is accepted, a home inspection to examine the property’s condition inside and out may be something you consider.
- Not all inspections test for things like radon, mold or pests, so be sure you know what's included and what may cost extra
- The inspector will need to be able to access every part of the home, such as the roof and crawl spaces
- Attend the inspection, you will receive a report after it is completed but you will want to pay attention so you understand what they are finding and can ask questions if you don’t understand something
- Don’t be afraid to ask your inspector to take a look — or a closer look — at something
- Not buying adequate homeowners insurance
Before you close on your new house, your lender will require you to establish homeowners insurance. Be sure to shop around and compare insurance rates to find the best price and look closely at what’s covered in the policies; going with a less-expensive policy usually means fewer protections and more out-of-pocket expenses if you file a claim. It is also important to know that flood damage isn’t covered by homeowners insurance, so if your new home is in a Special Flood Hazard Area you will need to buy separate flood insurance.