Buying a home for the first time is like a catch 22. While it is an exciting and joyful experience, it can be one of the most stressful times of your life. Everything from finding the right home, the right neighborhood, and probably the most stressful, financing the process. Having personally gone through this process recently, here are some financial tips for first time home buyers to help you avoid a lot of the headaches I went through and what you can expect during this process.
Start Saving Now
If you are serious about purchasing your first home, you should have started saving the day before yesterday. Do whatever it takes to make sure you can put aside something once a week or once a month. You may have to cut back on going out to eat so often. You might not be able to buy those shoes you have been wanting. You and your significant other may have to enjoy date night by finding something inexpensive to do. Whatever you need to do, start putting aside savings so that you can be financially prepared once you find your dream home.
Unless you are paying for your home in cash, your credit score is going to be a critical aspect of available financing. Your credit score is going to help determine interest rates and possible points toward your loan. Ultimately, your credit score will determine whether or not you can get pre-approved for a loan. The lowest credit score I have seen lenders work with is around the 580 range. If you are a person with a low credit score, start NOW on repairing it. There are several ways out there to improve your credit score but the best way is to talk with a credit repair specialist.
Hold on the Major Financial Transactions
Normally when you acquire about financing for a new home, the lenders are going to want to review bank statements from the past three months. To save you some frustration, be prepared to explain major transactions on your statement. Try to keep all deposits regular because the lender wants to make sure they know exactly how much income you have coming in versus how much you deduct for monthly bills. A personal example was when I was going through my process, I had recently taken my parents on a trip for their anniversary. My parents felt the need to express their appreciation by giving me a check for some of the expenses. I had to explain and provide a signed document stating where it came from and why I was depositing such a large amount of money.
Do Your Research
A lot of times when people start looking for homes, they are just focused on the cost of the home. Items such as closing cost, down payment and earnest money are often overlooked and not taken into consideration. You also have to budget for the real estate attorney, the inspection, yearly property taxes, and monthly maintenance bills. Depending on what type of home you buy, you may also have to pay a monthly assessment to the Homeowners Association. These are items that you will have to pay for upfront and factor into your monthly budget to determine if this is really a house that you can afford.
As a successful real estate agent, I know the importance of time. I have seen deals close and deals lost because of time being a factor. It is very frustrating for you, as the buyer, and the agent to drive around looking at homes when there is a possibility that you might not get pre-approved for the loan amount. This was another personal experience that I went through. My fiancé and I started looking at these wonderful townhomes. Wed envision ourselves of what life would be like once we moved in. We searched with an agent for about three months before I even knew what getting pre-approved meant. Being our first time purchasing a home, we were unaware that you need to be pre-approved first. Now that I am an agent myself, I realized that the agent we worked with back then should have made sure we were pre-approved before we looked at any more houses. That experience ended up wasting his time and building our hopes up only to get torn down. There is no point in looking at a house if you are not going to be able to afford it.
I recommend getting a lender that specializes working with first time home buyers. He or she can get you pre-approved and they will also be able to mention to you some of the grants/discounts you might be eligible for being a first time home buyer. My lender ended up getting me about $6,000 that I was not aware I was qualified to receive.
If you follow these five tips, they will get you started on the right track towards purchasing your first home. This is not something that is going to happen quickly. It takes patience, time and effort. Hopefully these tips will alleviate some of the stress and anxiety that comes with making the biggest purchase of your life. But the feeling you get when the keys are placed in your hand is indescribable.