In a perfect world, you would find a house you loved, make a reasonable offer, and head to the bank to sign your loan papers. For many buyers, though, buying a home turns into a nerve-racking process. This can easily happen to you if you don’t educate yourself on the steps involved in buying a home. Thankfully, we know a thing or two about the home-buying process, and we’ve created a guide full of our best tips on buying your first house. Most importantly, we’ve outlined how to buy a home that you love that doesn’t hinder your future financial goals.
Want personal assistance with buying a home? We have banking associates ready to answer all of your questions.
It Starts With Good Credit
Don’t fall victim to believing you have to have perfect credit to get a loan. Getting a loan starts with getting your finances in order, which begins with running a free credit report on yourself by visiting annualcreditreport.com. You’ll receive a report from each of the three major credit-reporting agencies (Experian, TransUnion, and Equifax).
It’s pertinent that you carefully review each report for any discrepancies. For example, you notice that a loan shows up as outstanding, but you’re certain you paid it off last year. To fix the error, contact the creditor and ask them to update the loan status. Then, you’ll want to check the reports for any credit card balances. For any cards that have a balance exceeding 30 percent of your credit limit, make sure to pay those down as quickly as possible. You should begin working on your credit as soon as you can because it generally takes a few months to a few years for negative marks to fall off.
Create a Budget
If possible, buy a home that comes with a payment that leaves you with at least $500 to $1,000 in income left over after you pay all of your monthly expenses, including house and utility payments, taxes, interest, and homeowners insurance. This gives you the chance to stash away cash into a savings account. The key here is to never buy a home with a payment that puts you in a difficult position to make the payment each month.
You’ll also need to consider your down payment. With a 10 percent down payment, buying a $200,000 home might be out of reach. But with a 20 percent down payment, the monthly payment becomes more affordable.
In addition to your down payment, it’s important to budget for closing costs, which usually run between two to five percent of your total loan amount. Ask the seller to pay for part of the closing costs to keep this expense to a minimum.
Explore Your Mortgage Options
Just because you’re struggling to save up for a down payment doesn’t mean you have to put buying your first home on the back burner. You have several options to look into, including conventional mortgages that conform to Fannie Mae standards and often require only a three percent down payment. You also have the option to enjoy down payment requirements as low as 3.5 percent with a Federal Housing Administration Loan.
Your down payment influences both your payment and interest rate. For the smallest monthly payment, choose a 30-year fixed loan. For a lower interest rate, opt for a 20-year or 15-year mortgage. The best mortgage for you depends on your finances and preferences. If you want your home paid for as soon as possible, then a shorter term mortgage will, of course, make more sense.
Tap Into State Programs
While exploring mortgage options, make sure to research state and local assistance programs that connect first-time buyers with financial assistance. Maryland has state programs that provide first-time buyers with closing cost assistance, discounted interest rates, help with a down payment, and more. All of these programs are designed to make it as simple as possible for you to buy your first home.
Once you’ve made the decision to buy a home, it’s important to get pre-qualified for a mortgage. Getting pre-qualified by a lender gives you a clear overview of how much money you can spend on a home. It can also give you an edge over other buyers who are making offers but haven’t been pre-qualified for a mortgage.
We hope our guide helps you achieve success on your home-buyer’s journey. Building good credit, saving up for a down payment, and seeking out assistance programs will make buying your first home much more enjoyable. Want help with buying a home? Reach out to one of our banking associates today.