It’s time to make The Decision: to be a homeowner or not to be a homeowner? Should you suffer the slings and arrows of outrageous loan terms, conquer a bad credit score and battle endless paperwork — all to become a new home buyer?
Is it worth it? Heck yes! Will it drive you batty? Probably.
What else should you expect as a new home buyer? The good news is many worries that feel impossible to overcome aren’t when paired with research, patience and initiative.
Six months is the least amount of time to wait to home shop and give your credit time to improve. Checking your credit score always brings up a feeling of dread, but your score is an essential item for home loan qualification. While rates are still relatively low in the housing market, approval standards are high.
The Federal Trade Commission (FTC) states you’re entitled to receive one free credit report every twelve months, which will give you three reports to access from the three major bureaus. You could space these out over a few months to a year, or get all three at once. Consider getting a secured credit card to help improve your credit usage, and pay your bills on time to improve your score.
Typically, home buyers put down 20 percent, but some lenders will allow less these days. New home buyers may be eligible to put down a single percentage, such as five percent. However, this means higher overall costs, especially for your mortgage insurance. Keep in mind that five percent of a $200,000 sticker price is $10,000.
You may only have one of those zeros after the one in your savings account right now. That’s okay — ten bucks is still something. Start saving for your down payment now, whether your home buying goal is six months or six years away. Use a down payment calculator to help you target a total goal amount.
Set up an automated savings plan, and shift over tax refunds or other bonus to help you save money now. Consider getting the Digit or Qapital app which rounds up on your everyday purchases to save you money in a protected savings account. These apps are free or low cost, and some allow you to make your own savings rules.
Is your total goal within what you can safely afford without sinking into a financial hole with no way out? Use a home affordability calculator to find a reasonable amount you’ll pay and stay afloat.
Affordable doesn’t mean you have to sacrifice your dream home, just a few of the ideals. Could you sacrifice a bigger space for a smaller one? You may prefer a condo or townhome, minus the cost of a homeowner association fee.
Don’t give up yet! Many programs exist to help new home buyers, such as Freddie Mac or Fannie Mae by putting down around a few percent. Other options for low down payment include:
Don’t be afraid to get creative to make up the difference. Start a side business. Ask family and friends to contribute to a crowdfunding campaign.
Keep researching local and state assistance programs for lower down payment loan options, which may alternatively offer interest-free loans or tax credits.
What year limit is the sweet spot for your mortgage? Compare mortgage rates with an online calculator, and get rate quotes from multiple lenders.
For lower interest, consider making higher payments monthly over 15 or 20 years. You may prefer a longer 30-year with a fixed rate. Adjustable-rate mortgages are riskier but secure low interest for the preliminary years of the mortgage. You can also pursue a part-time job to get ahead on your payments.
There are points for your license, car insurance and rewards points for grocery shopping and credit cards. Why not have points for mortgage interest rates?
Some lenders let you buy positive points and use these to prepay interest up front to nail down a low-interest rate for your loan. Typically, one point equals one percent of the total loan — paying $1,000 for one point on a total of $100,000, for example. Negative points are another option, where the lender will pay certain parts of your closing costs and give you a higher interest rate.
Before buying points, consider how long you’ll be staying in this home. If it’s only a starter home for two years, points won’t make sense. Loan offers and mortgage brokers will give you more resources and answer questions to judge if this system is right for you.
Getting a preapproval letter from a lender isn’t like getting one of those annoying “You’re Pre-Approved” credit card, junk mail letters.
It’s an estimate. Your prospective lender looks closely at your finances and sends you a follow-up letter that lets you know in writing the amount it’s willing to let you borrow under specific terms.
This gives you more material to make an educated decision while giving you leverage to shop around.
A great cover doesn’t always make for a great book upon reading. Similarly, there’s more to a home than its curb appeal. Trusting your gut is important, but it doesn’t hurt to go passed the curb and step inside.
A house that’s ugly on the outside may have sound plumbing, electrical wiring and structure, or the hazardous but pretty alternative. A historical home will have beautiful architectural features but may need restoration.
When buying your first car, all you had to do was point at it and pay, right? No, you checked under the hood, asked questions and weighed the decision carefully.
As a new home buyer, don’t skip a home inspection. Take a second look yourself to objectively inspect the property with a careful eye. If still interested in making an offer, order a professional home inspection, especially if the home is older. The professional will look for the negatives, including faulty waste lines and fixtures, bad plumbing, overloaded electrical systems and structural issues, and then you decide if you can afford to address those negatives. Every home will have something off.
It’s easy to get caught up in the shopping process and close on a home without scoping out the community first. Don’t forget to talk to the neighbors, look at crime rates, check out the school systems and see if this is a place you genuinely want to live in for its community and growth prospects.
So, you’ve really decided to do this thing and become a new home buyer. Owning a home is a major decision that provides many rewards, but it can be a negative if you’re not prepared.
Don’t rush, and do your research, because the reward of making a house that you bought a true home is the greatest reward of all.