For the first time homebuyer, the experience can be a bit daunting. Finding the right home, the right lender and the right loan all take time, and knowing whether or not they’re the “right” one is more of a guessing game than actual knowledge. Credit scores, down payments, and annual percentage rates are terms that get thrown around, and might not be fully understood.
But there are a few mortgage tips that are essential for the first time homebuyer. These tips can not only make the process easier, but also save you money and keep you from getting in over your head.
1- Check your credit score.
Your credit score may be the most important factor that’s considered when you apply for a mortgage. Don’t assume that you know what kind of credit score you have. Check it at least six months before you plan to start applying for loans.
Why six months? Because it takes a while to make any repairs or changes you need to make. If you don’t need to make any changes or repairs, great. But if you do, you don’t want to delay your home search because of it.
Don’t look just at the number for your score, either. Thoroughly go over your credit report. Look for unpaid accounts, collection accounts, and mistakes. Mistakes should be disputed immediately. If you have unpaid or collection accounts, depending on their age, you may want to pay them to get them removed or you may want to let them age off the report. If you have a lot of debt, it may be worth having a meeting with a service that can help you figure out how best to clean up your credit.
It’s not just about unpaid accounts or mistakes, either. How much credit you use, compared to how much credit you have, can also make a difference. If you’re only using 40% of your available credit, you stand a much better chance of being approved than if you’re using 70-80% of your available credit. This includes credit cards and outstanding loans, so if you’ve got cards that you’ve nearly maxed out and loans that still have a high balance due, you’ll want to get those paid down before you try to buy a home.
2- The loan offer isn’t what you have to take.
When you apply for a mortgage, they look at many factors, such as your income, your current debt level, family size, and more. They use this information to approve your loan. But what they may not tell you is that just because they approve you for that amount doesn’t mean you have to take it all.
Many first time homebuyers set a budget, and when they get approved for more than that, they take it and run. Down the road, they might find themselves in over their heads because of a job change, new baby, or other problems. You can stick to your budget, however.
Even reducing the amount you take by 20% can be enough to give you some breathing room financially while still giving you a beautiful home for your family.
3- Don’t hand over all your cash for the down payment.
First time homebuyers sometimes barely squeak by the requirements to buy a home. A lot of them will scrape together every dime they can to make the down payment, but this can be a huge mistake. This could make you what’s called “house poor,” which is a situation in which you’re unable to cover emergencies, or even basic bills, because you have no extra money.
There are programs available that can help you come up with the down payment. It’s critical that you not completely deplete your savings, so if you’re unable to come up with enough for the down payment and don’t qualify for a program, it might be better to wait a few more months and get more money.
Buying your first home can be an exciting and overwhelming time in your life. By following these simple tips, you can make the process a little smoother, a bit faster, and find the home of your dreams in no time. Who doesn’t want that?