Buying a house for the first time is exciting and challenging at the same time. Buying a first house may feel exhilarating but you may find yourself perplexed about how to begin with affording your dream home. Whether you are stuck with financing options, searching for a suitable home, or looking for eligibility to take loans and grants offered by the US government, you have arrived at the right place. This guide outlined detailed steps and tips for first-time home buyers to simplify the procedure.
As they say, research plays a big role in any financial goal, the same goes for buying your home for the first time. Hold on to all your excitement, and consider investing in considerate sources as your groundwork, collect funds, and prepare yourself for your apartment funding procedure like looking out for the value of real estate especially when the market is hot, and analyzing the competitive rates, though you can always seek help from realtors.
Sounds overwhelming? Don’t worry you are not alone. Buying your home should.t feel nerve-wracking and that’s why we have an all-in-one runway from the entire procedure, additional perks to help you afford your first home, and effective tips for buying a house.
Let us walk you through vital factors, requirements, and simplified tips for first-time home buyers to help you lead a convenient and stress-free procedure.
- Things to know for first-home buyers
- Perks of being a first home buyer
- What are the qualifications for first-home buyers?
- Plan out your financial options to buy your first house
- Tips for first-time home buyers
- What’s next after buying your first home?
- Wrap Up
Things to know for first-time home buyers
The step towards planning to purchase your first home includes determining your long-term goals and how ownership of your home fit with your goals. Whether you are planning to buy a house just to transform your rent into mortgage payments so that you can benefit from tangible equity or having home ownership gives you freedom and independence, whatever your goal is make sure you conduct thorough research and evaluate financial factors beforehand.
Having a big-picture before you invest your money to buy your dream home is extremely important. To make it easier and check if you are ready to buy a house at the moment or not, we are listing below a few factors or things to know for first-time home buyers.
Consider your current financial status
One of the leading home-buyinFg tips includes checking your current financial status. Before you begin shortlisting your potential house online, conduct an in-depth financial audit. You need to plan out the estimated purchase and the ongoing regular expenses till the time you complete the steps of buying a house. At the end of your audit, you will get an answer about whether you are ready to buy your house right now or whether you need a strategy to afford your dream house in a few years.
Have a check on your savings, if you don't have emergency funds of 3-6 months of expenses kept aside then probably you should reconsider your saving strategies. As when you buy a house there will be multiple additional costs like closing costs, down payment, and interest rates if you have opted for a loan or mortgage. You can consider a few financial vehicles to start your savings.
Evaluate your total expenses
Whether you want to buy a house or invest for the long-term, tracking your regular expenses and keeping a check on where your money is going is very important. Why is having a budget important? Because it will help you understand how much amount you can allocate to your mortgage payments to lead a smooth and hassle-free lifestyle.
Additionally, consider maintaining accounts for everything like car maintenance, utilities, food, clothing expenses for kids, regular debts, savings, retirement plans, entertainment, and more.
Pay attention to your credit score
To qualify yourself for a home loan, you need a history of good crest scores, a good record of paying bills and debts on time, and a maximum debt-to-income ratio of 43%.
However, lenders usually will prefer to limit housing expenses like homeowners insurance, taxes, interest rates, and more to around 30% of borrowed monthly gross income. Though the rates can vary on the market rates and depending on the local real estate market.
Explore which type of house suits your needs
When you begin your journey on your home hunt, you have multiple options in your hand. One of the most helpful home-buying tips by experts suggests checking and exploring different property types like townhouses, duplexes, single-family houses, multi-family buildings, or condominiums.
Every alternative has its pros and cons, depending on your needs, and home ownership goals you will have to decide your ideal option as rates and other requirements will vary. Additionally, you can save your overall purchase cost by selecting a fixer-upper, but it can be complicated so you need to consult an expert to understand the ins and outs of it.
Pre-plan the features that you want in your dream house
Since you are making one of the biggest purchases of your life when you buy your first home, it is relatively important to see if your purchase matches with your goals, and desires of your ideal house.
Making a list can help you find the right house for you. The list may include basic features like size, neighborhood, little details like bathroom fittings, furnished kitchen, and more. Scan through various real-estate websites to get clarity on property availability and average pricing offered.
Perks of being a first home buyer
Buying a first home is still a dream of many Americans, and selecting the right option can help grow the value of your asset over time. Though, being a first-time buyer you can benefit from a lot of things like tax breaks and federally backed loans if you cannot meet the minimum down payment requirement.
Usually, 20% of the purchase price for a conventional loan is provided to certain members when they plan to buy their first home. Additionally, you can also take advantage of assistance with down payment and closing cost assistance programs offered by the US government to first-time home buyers. State governments and non-profit organizations are permitted to operate these programs to help you cover your down payments
What are the qualifications for first-home buyers?
As we discussed, Americans can benefit from grants offered by the government while buying their house for the first time. However, as per the US Department of Housing and Urban Development (HUD), you need to meet certain eligibility criteria:
- A single parent who has owned a house with a former parent.
- An individual who had owned a principal residence and was not permanently affixed to a permanent foundation as per applicable regulations.
- An individual who hasn't owned a permanent residence for 3 years, or if you have owned a house in the past but your spouse has not taken you can be eligible under first-time home buyer benefits.
- An individual who has owned a property in the past that was not in compliance with state or model building codes and that cannot be accounted for in adherence to less than the cost of building for a permanent residence.
Explore financial assistance options to buy your first house
Irrespective of your home ownership goals, one of the vital tips for first-time home buyers remains to plan a secured financial strategy so that you can buy your dream house early without a chaotic financial journey. Though, first-time home buyers have multiple financial options available to purchasers and Federal Housing Authority (FHA) backed mortgages, and also to the ones geared toward novices.
Though, many first-time home buyers programs provide down payments at low-interest rates ranging from 3-5% compared to the standard rate which is 20%. While a few options won demand you to pay down payments at all. Let’s have a look t a few secured financial assistance options.
IRA
All first-time home buyers are allowed to withdraw $10,000 from their traditional individual retirement accounts (IRA) or Roth IRA without charging a penalty of 10% for early withdrawal. Though, you are still subject to paying taxes if you opt to choose a traditional IRA.
Additionally, a couple can withdraw a total of $20,000 - $10k from each account to purchase their first home. However, if you don't use these funds to purchase your house within 120 days and if you are below 59.5 then the withdrawal funds are subject to a 10% penalty, and you will have to pay tax on the withdrawn money.
State specific financial program
Many American states including Ohio, Washington, Illinois, and more offer certain financial assistance with closing costs, down payments, and expenses for improving property for first-time home buyers who are eligible for the program.
Usually, the eligibility for this program comes down to the income of the buyer and the size of the property that they wish to purchase.
American Native
Native Americans who wish to buy a home for the first time can apply for loans under section 184. Though this loan requires you to pay 1.5% as an upfront loan guarantee fee, and a 2.25% down payment on a loan over $50,000. Remember, Section 184 loans can be used for single-family houses which involve 1-4 units and primary residences.
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Tips for first-time homebuyers
We know how important and overwhelming it can be when it comes to buying your first home. To help you make the right decisions, we will navigate you with effective tips for buying a house so that you don't get stuck amid the journey.
1. Begin saving as early as possible
When you start planning on buying your new house for the first time, consider all the expenses with the total cost to transform your dream into reality. Let's delve deeper into a few upfront costs that you must consider when you begin saving to afford your first home.
Down Payment
A down payment requirement depends on the type of mortgage that you have selected and your lender. There are a few conventional loans catered to help first-time home buyers with good credit requirements of as low as 3% down, though sometimes a small down payment can be difficult for individuals to save for.
For instance, a 35 down payment of $300,000 payment will be $9000. You can choose a calculator to analyze your total payment and set up an automatic payment transfer to start saving.
Cost for Moving-in
Don’t forget to save for moving expenses, which usually cost around $2,500 for local movers. However, if you buy your new house distant from your current place, then long-distance moves can get expensive. Additionally, you will need extra cash after you move to your new home for immediate repairs, furnishing, and more, so make sure you have kept aside cash for such expenses.
Closing Cost
Closing cost refers to the fees required for finalizing the mortgage, which ranges from 2-6% of your entire loan amount. For instance, the closing cost for a loan amount of $300,000 will be $6,000 to $18,000.
2. Decide the cost that you can afford to buy a home
One of the most simplest and effective tips for buying a house is deciding or planning out how much you can safely spend your money without facing extreme financial burdens. Set an ideal range based on your income, credit score, debts, and the place where you wish to purchase your home.
3. Discover ideal mortgage options
When you have saved money, kept it aside, and determined the ideal cost that you can afford to purchase your house, it is the right time to prepare to shop for a mortgage. There are various mortgages available with varied eligibility requirements and down payment options.
FHA Loans
This type of loan is insured by the Federal Housing Administration and allows a down payment at a lower interest rate of 3%.
VA Loans
These types of loans are insured by the US Department of Veterans Affairs. These loans are specifically offered to current military service members and veterans and usually terminate the down payment procedure.
USDA Loans
This loan is guaranteed by the US Department of Agriculture. And it is ideal for suburban and rural home buyers and does not require a down payment.
Conventional Loan/ Mortgages
Many individuals prepare to shop for mortgage with this option as it is a common type of loan even when it is not insured by the government. Though, a few conventional loans used by first-time home buyers require a low down payment of 3%.
4. Compare rates and fees of Mortgages
Mortgage tips outlined by experts state you must explore a few mortgage options and compare 3-5 alternatives before you move ahead with paying a down payment for your house. This can help you save hundreds and thousands of dollars which could consume a lifetime.
The Consumer Financial Protection Bureau suggests requests for a similar type of mortgage from various lenders to easily compare the cost, interest rates, and origination fees.
Though, lenders may offer you buy discount points, which are fees that the borrower pays to lower the overall interest rate. As ideal mortgage tips, buying points are considered ideal when the borrower has money and plans to live in the house for the long term.
5. Collect your paperwork for the loan
Collect all your paperwork for a loan beforehand, and thank us later for getting one of the best savior mortgage tips. When you apply for a loan, your lender will ask for a few financial records to verify your income, assets, and eligibility for the loan.
- You will need proof of income and employment, like tax returns W-2s, and 1099s.
- Bank statement, retirement, and brokerage account
- Documents of other events that can impact your finances, like bankruptcy, divorce, or foreclosure.
- Debt payment records, like auto loans, student loans, or real estate debt.
Save your time, and organize all these documents before you start applying for loans. You will need paperwork for pre-approval of the mortgage and again when you apply for a loan.
6. Prepare your pre-approval letter
A mortgage pre-approval letter is a lender’s offer to give you a loan under certain specific terms. Having this letter ready will give a good image of you in front of sellers and real estate agents that you are a serious buyer.
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Though, apply for a pre-approval letter only when you are ready to start searching for your home. Later on, a lender will access your credit and review the documents that you're organizing for loan approval. Applying for a pre-approval letter from more than one lender to compare rates, fees, and costs as per mortgage tips will not affect your credit score., only if you apply for a limited time of a maximum of 30 days.
Wrap Up
This roadmap and home buying tips will help you fill in the gaps of your buying new home journey. Note that the more you research and collect essential knowledge beforehand, your journey to buying a new home will be stress-free.
The tips for first-time home buyers outlined in the blog will help you buy your dream home at the price you can afford. You may need to put in extra effort and wait for some more time to gather funds, with correct research methods and comparing mortgage rates. Lastly, amid the journey you will have confidence with these tips for buying a house of your desires.
What are you waiting for? Get started with your home-hunting journey today!
Frequently Asked Questions
To begin, you can ask your friends, colleagues, neighbors, and relatives for recommendations. The other way is conducting local searches or reading online reviews of realtors on platforms like Zillow. Shortlist your ideal realtors, and meet them individually to understand tier methods, offerings, and fees.
Financial health can refer to an individual’s current financial condition which can include savings, income, expenses, and more. It also involves credit score which determines one’s ability to pay back the debt or loan. Planning a long-term saving strategy and finding the right mortgage option can be one of the ideal tips for buying a house for first-timers.
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