Buying a new home for the first time is a major life milestone. It's also often an exciting one, as first-time homebuyers enjoy long afternoons visiting open houses, combing through listings, and planning the big move. But buying a new home can also be overwhelming. Home buyers also have to put together a down payment, find a real estate agent, juggle home inspections, closing costs, paperwork, and countless other expectations that go into the home-buying process. This is where a few tips for first time home owners come in handy.
For buyers who do not know what to expect as they start the home-buying process, here is some advice to make the most of the home buying experience.
Know Your Score & Financial Situation
No one likes to be reduced to a number, but when buying a home, much of the financial aspects of the deal will hinge on the buyer's credit score. The higher the score, the better position the buyer is in to negotiate a favorable interest rate and obtain the necessary financing.
The first step toward home ownership is to know your credit score. The major credit bureaus, Equifax, TransUnion, and Experian, collect data from your spending habits and aggregate the data into three scores. Lenders use these scores to evaluate how likely you are to repay a debt in the future. It's important to know that requirements vary from lender to lender.
The best loan rates are typically available to buyers with very high scores and solid financial standing. A buyer with a score at the lower end of a lender's acceptable range will pay more every month in interest than a buyer with better credit.
If your credit score isn't where you want it to be, you can take some immediate moves to improve it:
- Eliminate credit card debt: Paying down credit card balances will quickly reduce your overall debt load and increase your amount of available credit. However, you will want to make sure you are doing this far enough in advance of trying to secure a loan so that the initial dip in your score does not hurt your chances of approval.
- Scour your report for any inaccurate data: Challenge false information. Clear up any old debts.
- Do not close old accounts, even if you do not use them: A portion of the credit score depends on the length of your credit history so those favorable aging accounts are helping you.
- Do not open any new accounts: Too many recent inquiries can negatively affect your score.
Simply paying down balances can have an immediate impact on your credit score, but other improvements take time. Be wary of any service that promises to immediately improve your credit score.
Understand What Down Payment Will Work for You
Long before a buyer makes an offer on their Nashville dream home, they saved money for a down payment. Conventional wisdom states that a prospective buyer will have 20 percent of the down payment in cash at the time of closing. These funds may come from savings, the sale of securities, gifts from relatives, or a loan from a 401(k). Mortgage companies may ask for documents to verify the sources of these funds.
Don't have 20 percent to pay towards a down payment? Many lenders will accept a lesser percentage as long as the buyer agrees to pay private mortgage insurance (PMI) until there is sufficient equity. Lenders with various loan options can accept down payments as low as 3 percent of a home's price, making the expense of a down payment much more accessible for first-time home buyers. Alternative funding such as an FHA, USDA, or VA loan requires lower down payments as well.
Work With a Reputable Real Estate Agent
It can be tempting for inexperienced buyers to try to go through the home-buying process alone, but there are simply far too many potential pitfalls they can experience without the help of a real estate professional. Your agent will be able to guide you through any tricky situations, including contingencies, negotiations, and contracts that can make or break the deal when approaching closing. They will also have the experience of many prior home buyers and sellers to help you zero in on a home that will fit your needs the best.
When home shopping, it's easy to get carried away. A buyer's list of wants may be extensive, but in the end, they will have to choose a home that is well within their financial means. Getting pre-approved for a mortgage will give a buyer a sense of how much they have to spend when home shopping. Understand that changing certain variables like the neighborhood or bowing out of a bidding war can have a significant impact on a home's price.
Buying a home can be a confusing process for the uninitiated. Choose a qualified, experienced agent to advocate for you and guide you through every step of the process for a smooth transition into your new home.
The Ashton Real Estate Group of RE/MAX Advantage
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