Homeownership is a dream of most Americans and provides many great benefits, from stability and freedom to appreciation and tax savings. But no matter the reason, buying a home can seem overwhelming for many first-time homebuyers. So here are the top tips for first-time home buyer loans to ensure your experience goes smoothly and trouble-free.
1. Make Sure You’re Ready to Commit
Unlike renting, owning a home is a long-term commitment, and you can’t just relocate on a whim. Most mortgages come in either 15 or 30-year terms. So, it’s essential to ask yourself three important questions before starting your search:
- Do I want to live in the area for the next five years?
- Do I have an emergency fund that covers at least three months of expenses?
- Are my job and income stable?
If the answers are yes, now may be the perfect time to realize your dream of homeownership.
2. Get Pre-Approved
The best time to get pre-approved for a mortgage is before you start looking. This step is especially important for first-time homebuyers. Mortgage pre-approval gives you valuable information about your loan. In addition, it identifies any potential issues and challenges and the appropriate solutions.
Keep in mind that there’s a difference between pre-qualification and pre-approval. A pre-qualification estimates how much you can afford but is not a guarantee. While a pre-approval is an official document that tells you how much you can afford and the specific loan terms.
With pre-approval in hand:
- You know exactly how much you can afford.
- You have more substantial negotiating power with the seller.
- The mortgage process goes smoother, and you’re less likely to experience last-minute surprises.
Be sure to look for a lender that understands not only the mortgage industry but also what this experience is like for first-time homebuyers. Here’s an excellent option when looking for Vermont home loans.
3. Attend a First-Time Homebuyer Class
Next, you’ll want to attend a first-time homebuyer class. These classes are often a requirement for state and local first-time homebuyer assistance programs. Your lender can provide you with a list of online and in-person classes. First-time homebuyer classes prepare you for homeownership and help you avoid costly mistakes.
4. Maintain Your Credit
Now is not the time to open new credit lines or get a new credit card. Lenders want to see that your credit history is stable and predictable and don’t like surprises. Also, any changes in your credit status can void your pre-approval letter.
5. Down Payments
There are common misconceptions about how much you’ll need to save for a down payment, and the amount will vary by mortgage type. However, you may be eligible for down payment assistance or grants as a first-time home buyer.
Your lender will use the official definition of a first-time homebuyer, as outlined by the Department of Housing and Urban Development, to determine your status.
During the pre-approval process, your lender will review all your options and check to see if you are eligible for any state or local down payment assistance programs.
6. What Are Closing Costs?
Besides the down payment, there are other expenses when buying a home. Known as closing costs, these are expenses for various loan services arranged by your lender.
Typical closing costs include:
- Attorney fees
- Title insurance and escrow fees
- Appraisal fees
- Discount points (if applicable)
- Homeowner insurance and property taxes
Expect to pay around 2-3% of the home’s sales price in closing costs. The settlement statement provided at closing outlines all the associated costs for the home purchase. As a qualified first-time homebuyer, you may be eligible for assistance with closing costs. In addition, it is common to ask the seller to pay part or all of these costs.
7. Know the Difference Between Wants and Needs
Having a clear idea of what you want versus what you need is vital as you start looking at homes. Make sure that the house will meet any plans you might have, such as raising children or having space for your pets. However, your first home may not have everything you want. But remember that you’re building equity for the future.
8. Don’t Go It Alone
Your lender can recommend a professional Realtor that is experienced in helping first-time home buyers and who will manage the process from start to closing. Your agent will show you homes that meet your needs and fit your budget. In addition, they will handle all the paperwork and attend the closing to ensure everything is in order before you sign the documents.
9. Stick to Your Budget
It’s easy to start looking at homes outside your budget, but this only leads to stress and frustration. Have patience – the perfect home within your budget is out there. Don’t let emotions get you in over your head.
10. Hire a Home Inspector
Home inspections differ from appraisals. An appraisal determines the home’s value and whether it meets minimum property standards. A home inspection looks deeper to identify if there are any specific problems with the house.
Your purchase contract will provide a time frame for you to perform the home inspection. If any issues arise, you can ask the seller to fix them or cancel the contract without penalty.
If permitted, try to be present during the home inspection. That way, the inspector can answer any specific questions or concerns you may have.
11. Keep Calm
Above all else, stay calm. It’s expected that situations arise throughout the home buying process. If something occurs, take a deep breath and remember that you have a team of professionals working for you every step. Before you know it, you’ll be walking through the front door of your new home.
