October 22nd, 2017 8:33 AM by Jackie A. Graves
Figuring out how much home you can afford, hiring the right
buyers agent and being ready to negotiate are a few ways to make the process
Buying a home can be nervewracking, especially if you’re a
first-time home buyer. Not only is it probably the biggest purchase of your
life, but the process is complicated and fraught with unfamiliar lingo and
make the first-time home buying journey a little less stressful, NerdWallet has
compiled these 25 tips to help you navigate the process more smoothly and save
money. We’ve divided our list into three sections.
common to put 20% down, but many lenders now permit much less, and first-time
home buyer programs allow as little as 3% down. But putting down less than 20%
may mean higher costs and paying for private mortgage insurance, and even a
small down payment can still be hefty. For example, a 5% down payment on a
$200,000 home is $10,000.
Play around with a down payment
calculator to help you land on a goal amount. Some tips for
saving for a down payment include setting aside tax refunds and work bonuses,
setting up an automatic savings plan and using an app to track your progress.
Before you start looking for
your dream home, you need to know what’s actually within your price range. Use
a home affordability
calculator to determine how much you can safely afford to
you’re taking out a mortgage loan, your credit will be one of the key factors
in whether you’re approved, and it will help determine your interest rate and
possibly the loan terms.
So check your credit before you begin the
home buying process. Dispute any errors that could be dragging down your credit
score and look for opportunities to improve your credit, such as making a dent
in any outstanding debts.
time you open a new credit account, whether to take out an auto loan or get a
new credit card, the lender runs a hard inquiry, which can temporarily ding
your credit score. If you’re applying for a mortgage soon, avoid opening new
credit accounts to keep your score from dipping.
to come up with enough money for a down payment? First-time home buyer
programs are plentiful, including federal mortgage programs with Fannie
Mae and Freddie Mac that allow loans with only 3% down.
low down payment options include:
Administration loans, which permit down payments as low as
loans, which sometimes require no down payment at all.
You could also try crowdfunding or asking if family members are
willing to pitch in with a gift.
addition to federal programs, many states offer assistance programs for
first-time home buyers with perks such as tax credits, low down payment loans
and interest free loans up to a certain amount. Your county or municipality may
also have first-time home buyer programs.
In addition to saving for a
down payment, you’ll need to budget for the money required to close your
mortgage, which can be significant. Closing costs generally run between 2% and
5% of your loan amount. You can shop around and compare prices for certain
closing expenses, such as homeowners insurance, home inspections and title
searches. You can also defray costs by asking the seller to pay for a portion
of your closing costs or negotiating your real estate agent’s commission. Calculate your
expected closing costs to help you set your budget.
that’s not all you need to save up for before home shopping. Once you’ve saved
for your down payment and budgeted for closing costs, you should also set aside
a buffer to pay for what will go inside the house. This includes furnishings,
appliances, rugs, updated fixtures, new paint and any other touches you’ll want
to have when you move in.
may assume you’ll buy a single-family home, and that could be ideal if you want
a large lot or a lot of room. But if you’re willing to sacrifice space for less
maintenance and extra amenities, and you don’t mind paying a homeowners association
fee, a condo or townhome could be a better fit.
Is a 30-year, fixed rate
mortgage a given, or is another loan type right for you? If you can afford
larger monthly payments, you can get a lower interest rate with a 20-year or
15-year fixed loan. Use our calculator to
determine if a 15-year or 30-year fixed mortgage is a better fit for you. Or
you may prefer an adjustable-rate mortgage, which is riskier but guarantees a
low interest rate for the first few years of your mortgage.
Many homebuyers get a rate
quote from only one lender, but this often leaves money on the table. Comparing mortgage rates from at least
three lenders can save you more than $3,500 over the first five years of your
loan, according to the Consumer Financial Protection Bureau. Get at least three
quotes and compare both rates and fees.
Lenders often allow you to buy discount points,
which means prepaying interest upfront to secure a lower interest rate. There
may also be an option for negative points, in which the lender pays some of
your closing costs in exchange for a higher interest rate. How long you plan to
stay in the house is one of the key factors in whether buying points makes
sense. You’ll need to do some calculations or speak to a mortgage
broker or loan officer to help you decide if buying points is worth it for
can get prequalified, which simply gives you an estimate of how much a lender
may be willing to lend based on your income and debts. But as you get closer to
buying a home, it’s smart to get a preapproval, where the lender thoroughly examines
your finances and confirms in writing how much it’s willing to lend you and at
what terms. Having a preapproval letter in hand makes you look much more
serious to a seller and can give you an upper hand over buyers who haven’t
taken this step.
be working closely with your real estate agent, so it’s essential that you find
someone you get along with well. The right buyers agent should be highly
skilled, motivated and knowledgeable about the area.
your agent shows you homes, look for properties that cost a little less than
the amount you were approved for. While you can technically afford that amount,
it’s the ceiling — and it doesn’t account for a broken washer or dryer or any
other expenses that arise during homeownership, especially right after you buy.
Rather than maxing out that amount, set a lower purchase budget to leave
yourself wiggle room for unexpected costs.
the right neighborhood is just as important as locating the right house.
Research the schools, even if you don’t have kids, since that affects a home’s
value. Look at local safety and crime statistics. How close are the nearest
hospital, pharmacy, grocery store and other amenities you’ll use? Also, drive
through the neighborhood on various days and at different times to check out
traffic, noise and activity levels.
this as another opportunity to scope out the neighborhood and your potential
neighbors. During the open house, pay close attention to the home’s overall
condition and look for any smells, stains or items in disrepair. Ask a lot of
questions about the home, such as when it was built, when items were last
replaced and how old key systems like the air conditioning and the heating are.
If several other potential buyers are viewing the home at the same time as you,
don’t hesitate to schedule a second or third visit to get a closer look and ask
easy to look at properties that meet your current needs. But if you plan to
start or expand your family, it may be preferable to buy a larger home you can
grow into. Consider your future needs and wants and whether this home will suit
you’re looking at a home, it’s easy to get caught up on superficial details
like paint color, fixtures and carpets. These features are easy to change once the
home is yours, so don’t let those little details get in the way.
rare to find a house that’s perfect in every way, so think carefully about what
you’re willing to compromise on and what you’re not. Perhaps no walk-in closet
in the master bedroom is a deal breaker, but an outdated guest bathroom will be
tolerable until you can renovate it.
real estate agent can help you with this, but consider how much under or over
the asking price you’re willing to pay to obtain your dream home. If there are
multiple bids, think about tactics to win over the seller, such as a
a competitive real estate market with limited inventory, it’s likely you’ll
bidding on houses that get multiple offers. When you find a home you love, it’s
tempting to make a high-priced offer that’s sure to win. But don’t let your
emotions take over; stick to your purchase budget to avoid getting stuck with a
mortgage payment you can’t afford.
lot can be up for negotiation in the homebuying process, which can result in
major savings. Are there any major repairs you can get the seller to cover,
either by fully handling them or by giving you a credit adjustment at closing?
Is the seller willing to pay for any of the closing costs? If you’re in a
buyers market, you may find the seller will bargain with you to get the house
off the market.
you close on your new house, your lender will require you to
buy homeowners insurance. Shop around and compare rates to find the best
price. Look closely at what’s covered in the policies; going with a less
expensive policy usually means fewer protections and more out-of-pocket expenses
if you file a claim. Be aware that your insurer can drop your property if it
thinks the home’s condition isn’t up to snuff, so you may have to be prepared
to find a new policy quickly if it sends someone out to look at the property
and isn’t happy with what it finds. Also, flood damage isn’t covered by
homeowners insurance, so if your new home is in a flood-prone area, you may
want to buy separate flood insurance.
your offer is accepted, you’ll pay for a home inspection to examine the
property’s condition inside and out. But not all inspections test for things
like radon, mold or pests, so be sure you know what’s included. Make sure the
inspector can access every part of the home, such as the roof and any crawl spaces.
Attend the inspection and pay close attention. Don’t be afraid to ask your
inspector to take a look — or a closer look — at something and ask questions.
No inspector will answer the question, “Should I buy this house?”, so you’ll
have to make this decision after reviewing the reports and seeing what the
seller is willing to fix.
Emily Starbuck Crone – To view the original article click here