- August 21, 2019
- Posted by General Electric Credit Union
- 6 read
11 Things to Know as a First-Time Homebuyer
Purchasing a home is one of the biggest financial investments you’ll make in your life! With such a big decision at hand, it’s important to understand the home buying process and potential obstacles you could face along the way. Although every home buying experience is different, there are a few things most first-time homebuyers tend to overlook. Read these tips so you can avoid them when it comes time to purchase your first home.
- Check your credit report and correct any errors. Your credit report will be reviewed by mortgage lenders who determine the interest rate you’ll receive. Therefore, it’s important to make sure your credit report is correct and error free or you could run the risk of having your application denied or receive a higher interest rate than you deserve. To help avoid this, visit: annualcreditreport.com to get a free copy of your credit report from each of the three main credit bureaus: Experian, TransUnion, and Equifax, then review and correct any errors you may find.
- Avoid applying for another loan. If you’re considering applying for a new credit card or another type of loan, a good rule of thumb is to wait until after you purchase your new home. When your credit report is pulled, any recent applications for credit could negatively affect your report and your credit score. Keep in mind, your credit report will be pulled again before closing to ensure nothing has changed with your finances. During the entirety of the home buying process, the best thing to do is maintain your credit score by making payments on time and not applying for new loans.
- Get multiple mortgage rate quotes and understand potential fees. Before diving in, get various mortgage rate quotes to help give you an idea of how much house you can afford. When doing so, talk to more than one mortgage lender, otherwise you run the risk of missing out on potential money-saving opportunities. The more you look around and rate shop, the more confident you’ll be when you choose your lender. When rate shopping, ask questions about any potential fees before getting pre-approved. As a rule of thumb, talk to at least three different lenders and a mortgage broker to: compare rates, lender fees, closing and processing fees, loan terms, and service.
- Get pre-approved. While you might be excited to view homes right away, make sure you are pre-approved by a mortgage lender first. They will confirm how much you can afford to spend on a home and give you an idea of what your payment might be. Plus, when you get pre-approved, you’ll be taken more seriously as a prospective homebuyer due to your ability to successfully receive a loan.
- Decide how much you’ll set aside for a down payment. While there are programs available to help with down payments, it’s a good rule of thumb to put as much down on your home as you can afford and still meet the requirements of the loan program you choose. The more you put down, the less you’ll pay month to month and over the life of the loan.
- Consider mortgage points. Mortgage points, also known as discount points, help reduce your interest rate over the life of your loan. The more points you can pay upfront, the lower your interest rate will be. Each point is equivalent to $1,000 for every $100,000 borrowed, and each point typically lowers your interest rate by a percentage.1 If you’re choosing between discount points and making a 20% down payment, just be sure to keep in mind that making a down payment lower than 20% could mean you’ll be required to carry private mortgage insurance (PMI). Your mortgage lender can help determine the best option for your situation.
- Keep an open mind. Keep an open mind with the housing market and what’s available in your price range; if you don’t, you may limit your choices and rule out solid contenders. Instead, create a list of must-have features that would make or break your decision and share it with your realtor. Discuss any repair or renovation ideas in the house you’re looking to buy with your realtor, family, and friends as they might have recommendations. Just know that these projects can be expensive, but they can also have advantages if you decide to sell your home later.
- Avoid making emotional decisions. Your new home is a place where you’ll make memories and put down your roots. While it’s easy to get attached to a home you fall in love with, it’s important to remain realistic. When looking at homes, make a budget and stick to it. Remember a home will instantly start to feel like yours the minute you put your belongings in it.
- Buy a home within your price range. Take the time to calculate how much home you can afford. Just because you get pre-approved for a specific amount doesn’t mean you need to buy a home that costs that much. It’s also important to keep in mind various other expenses, including: mortgage insurance, homeowner’s insurance, repairs and maintenance, utilities, property taxes, homeowner association fees, furnishings, and more. Getting a better understanding of all the associated expenses upfront will help you avoid surprises later.
- Consider first-time homebuyer programs. There are several programs available that may be able to help you afford to buy your home. Talk to your mortgage lender about the options available in your state, such as: Federal Housing Administration (FHA), Veterans Administration (VA), or U.S. Department of Agriculture (USDA) loans to name a few.2
- FHA Home Loans. This loan is one of the easiest mortgage loans to qualify for to help with your down payment. If you have a credit score greater than 580, you could qualify for a down payment as little as 3.5%.3
- VA Loans. To qualify for this loan, you must be an active or retired veteran. Qualified borrowers don’t have a down payment requirement, which greatly reduces any upfront costs of attaining a mortgage.2
- USDA Loans. If you are interested in buying a home in an area designated as rural by the U.S. Department of Agriculture, you could qualify for this loan. In fact, almost 97% of the country is in an eligible USDA location. Plus, there’s no down payment requirement and 100% financing options available.2
- Don’t skip the home inspection. While home inspections aren’t required when buying a home, it’s always wise to get one anyway. Safeguard your purchase by understanding any underlying problems the home may have, such as: plumbing, electrical wiring, the roof, and foundation, to name a few. When you hire an inspector, they will identify problems before you close. You can either ask the seller to fix the issues or back out entirely if the problems are too extensive. Once the home is yours, you are financially responsible for whatever problems arise.
Buying a home is an exciting milestone! To make the process as smooth as possible, use this list of recommendations when going through the home buying process. You’ll become more confident in your decision making, allowing you to enjoy the journey.