Useful Tips to Consider for First-time Homebuyers
Many Americans still rent because it is hard to save for a down payment and closing cost, which are crucial when purchasing a home. According to the US Census Bureau, the homeownership rate dropped by 63.7% in 2015. The studies show that the rate fell to the lowest in more than 50 years because of the rising prices.
All hope is not lost though. You have to know that there are federal and state-sanctioned assistance programs (like FHA loans, VA loans, and USDA loans) that can help you get approved. The down payment assistance programs aim to help people struggling with down payment and closing costs. With this, it is important that you investigate and make it happen.
Here are some useful tips to consider for first-time homebuyers:
Down payment tips
If you are struggling to come up with a down payment, it is important that you check mortgage options. Mortgage options include conventional mortgage, FHA (Federal Housing Administration) loans, and VA (Veterans Affairs) loans. In a conventional mortgage, it is common to put at least 20% down payment.
In FHA loans, it allows as little as 3.5% down for a first-time homebuyer with 580 credit score or higher. If the credit score is lower, it can be 10%. The VA loans, on the other hand, require no down payment. However, if you put less than 20% down, you will need to pay private mortgage insurance. With this, you need to start saving for either down payment or private mortgage insurance.
Mortgage application tips
Before you apply, it is crucial that you determined how much you can afford. Aside from that, you should check your credit and halt any new activity. Remember that when applying for a mortgage, your credit will be one of the key factors whether you will be approved or not. Your credit will also possibly dictate your loan terms and interest rate.
The next thing to do is to compare the mortgage rates. It is important that you approach at least three lenders so you can compare the rates. In fact, according to the Consumer Financial Protection Bureau, finding the right lender can help you save more than $3,500 over the first five years of your loan.
Finally, you should get a pre-approval letter. This will give you an estimate of how much the mortgagee is willing to lend based on your debts and income. Having a pre-approval letter will send a message to the seller that you are serious about buying a house.
House shopping tips
Now you can proceed to house shopping. It will be easier on your part to hire the right agent. It is crucial that you make the most of the open houses. When you are touring, you have to pay close attention to the overall condition of the home. If you are not satisfied with your first visit, do not be afraid to schedule a second or third visit.
When house shopping, first look at the properties that cost less than the amount that you were approved. The pre-approval amount should be your ceiling, which should include other monthly expenses and other costs (like property taxes, mortgage insurance, and homeowner’s association). The prudent thing to do is to stick to your budget to avoid a mortgage payment that you cannot afford.