How to Buy Your First Home in 10 Steps
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Some conventional loans targeted at first-time buyers require as little as 3% down. If you find your credit score is lower than you would like it to be, you can improve it if you pay all of your bills on time, pay off debts, and keep your credit card balances low. If you're married, you should think about whether to put one or both spouses on the mortgage.
This home buying guide highlights some of the key considerations you should keep in mind below. The seller might propose another offer that might be contradictory to yours. Respond to it if you like it; otherwise, reject it and move on. You might not think so, but there’s another great house out there waiting for you. Inflation has dramatically affected home buying, so that’s important to consider too. It’s important to invest wisely and be honest with yourself when you’re evaluating your financial circumstances.
Research the market
Now that you’ve decided you’re ready to buy your first home, you need to figure out how much you can afford so you can start shopping for that dream house. First-time home buyers have a steep learning curve, from understanding true affordability and how to qualify for a mortgage to managing their cash flow after their purchase. Information, rates and programs are subject to change without notice. An outside company hired by the lender will provide a fair, unbiased appraisal on your home to determine its value.
Work with your real estate agent to understand the local market and strategize accordingly. Once the inspection is over you can move on to closing, which also includes like getting title insurance and homeowners insurance. You'll also have to appear on the closing date, which is when you'll sign a lot of paperwork and pay your closing costs. Weigh the pros and cons of single-family homes, condos, and townhouses. All of these home types have their merits, so which one is “best” truly just depends on which one can meet your personal and financial needs. Your preapproval letter will also come in handy here as you’ll know which houses are in your budget, so you don't accidentally get your heart set on a home you can’t afford.
Thinking of selling
Conveyancing is the process of transferring the ownership of the property from 1 person to another. It’s down to you to arrange and pay for a more comprehensive survey. This is recommended if you're buying an older, larger or significantly altered property or a planning structural renovations. And remember to look out for deals on your insurance and utilities to bring down your outgoings. A way to track these is to make a strict budget and stick to it where possible. Anything you have left could then go into an interest-paying account.
Closing costs will vary but are typically between 3 percent and 6 percent of the cost of the house. Sometimes this is rolled up into the buying price and paid for in your mortgage, but not always. It all depends on the nature of the housing market in your area.
Get pre-approved for a mortgage
For example, you might request energy bills from the past 12 months to get an idea of average monthly costs. Paying down some of your debt or looking for ways to generate extra income before applying for a mortgage could help to improve your debt-to-income ratio. If you have one to three years to realize your goal, then a certificate of deposit may be a good choice. It’s not going to make you rich, but you aren’t going to lose money, either . The same idea can be applied to purchasing a short-term bond or fixed-income portfolio that will not only give you some growth but also protect you from the tumultuous nature of stock markets. An individual who has not owned a principal residence for three years.
In addition to your traditional home inspection, you may want to consider getting supplemental home inspections if they apply to your home. For example, if your home is on a well and septic system, it makes sense to have those systems inspected before you buy. “Get a good agent who is available full-time and is committed to making sure you see properties as they come up,” Sweet advises. At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote stricteditorial integrity in each of our posts.
First, ask yourself what you want to get out of buying real estate. Are you looking for a home in which to live or aninvestment property? This will help shape the type of research you’ll need to conduct. You’ll want to get an idea of where you’d like to buy, what the recent trends are in that area and what kind of place you could afford. The hard work is now done and you should have a moving in date. However, before you get carried away with house-warming plans, it’s worth thinking about how you’ll shift all your gear with a moving house checklist.
Miriam Caldwell has been writing about budgeting and personal finance basics since 2005. She teaches writing as an online instructor with Brigham Young University-Idaho, and is also a teacher for public school students in Cary, North Carolina. Zillow Group is committed to ensuring digital accessibility for individuals with disabilities. We are continuously working to improve the accessibility of our web experience for everyone, and we welcome feedback and accommodation requests.
Apply for preapproval when you're ready to start home shopping. A lender will pull your credit and review documents to verify your income, assets and debt. Applying for preapproval from more than one lender to shop rates shouldn't hurt your credit score as long as you apply for them within a limited time frame, such as 30 days. There are conventional loans for first time home buyers with good credit that allow down payments as small as 3%, so don’t let the idea of a 20% down payment hold you back. After you look into your credit score, the next step is to start saving up for your down payment. Saving for a down payment on a home can take some time, but it’s worth it.
It also provides liability insurance if you're held responsible for an injury or accident. Buy enough home insurance to cover the cost of rebuilding the home if it's destroyed. In a buyers’ market, some motivated sellers may offer to pay some or all of the buyer’s points to close the deal.
National and state first-time buyer programs may be useful if you can't afford a high down payment. In addition to Investopedia, she has written for Forbes Advisor, The Motley Fool, Credible, and Insider and is the managing editor of an economics journal. Find a buyer’s agent who will walk you through the process of buying your dream home.
HomeLight’s agent search tool can match you with real estate agents who have worked with clients with situations similar to yours to purchase homes in your area. Your lender will also monitor your credit score throughout the mortgage process, not just with the initial credit report that they pull. Opening new accounts, increasing your balances, or closing accounts could potentially put your loan in jeopardy. “Wait until the loan has closed and you have signed off on everything and have the keys, then go ahead and buy furniture or open a new credit card, but not prior to that,” says Rai. VA and USDA programs do not have minimum credit score requirements, but your lender might have a minimum score that they require for qualification.
Step 3: It’s time for your credit check up
We’ll find you a highly rated lender in just a few minutes. Credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that could hurt your score. We believe everyone should be able to make financial decisions with confidence. When you attend an open house, begin by taking a close look at the outside of the home to get an idea of what condition the full home is in.
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