First-time homebuyers have many options available to them. It’s easier than ever today to buy your first home even without a 20% down payment. Before you jump into homeownership, check out these 5 tips to make your process as easy as possible.
- Fix your credit
Always check your credit before applying for a mortgage. You get free access to your credit report here and your bank or credit card company may provide free access to your credit score. Make sure you have timely payments, haven’t overextended your credit usage, and don’t have an excessive number of inquiries on your credit report.
- Get pre-approved
Looking at homes without a pre-approval is like shopping at stores you can’t afford. Why waste your time and that of the sellers? Instead, get pre-approved. It takes only a little time, and it provides the information you need to determine how much house you can afford and/or what you can do to improve your situation and get better financing options.
- Look at the big picture
Too many people focus on the interest rate alone. There’s more to a mortgage than the interest rate. Look at the total cost of the loan. Is it a fixed-rate or adjustable-rate loan? How much will it cost if you keep it for the entire term including the closing costs? The right loan may surprise you – it’s not always the one with the lowest rate.
- Save for a down payment and closing costs
You don’t need a 20% down payment, but the more money you invest, the better terms you get. If you don’t have 20% down but have at least 3% and good credit, you may still qualify for conventional financing. If you have ‘average’ credit and at least 3.5% down, an FHA loan may be a good option.
Either way, focus on putting money down and also saving enough money for the closing costs which can total between 3% – 5% of the loan amount.
- Get multiple quotes
Don’t focus on one loan – get quotes for several loans and decide which one suits you the most. Look not only at what you can afford today but in the future too. Will you go down to one income when you start a family? Will you make more money in the years to come? Think of how you’ve planned your future and choose a loan that fits that lifestyle moving forward.
First-time homebuyers don’t need perfect credit or a large down payment. There are many options, but always explore the options you have. Compare them side-by-side, looking at the monthly payment and total overall costs.
When you get pre-approved, you can see what your loan will look like and how it will affect your finances. Investing in real estate can be one of the largest and best investments you make in your lifetime. Choose your loan carefully to make the most of this investment!
Written by the Mortgage Loan Center.