10 first-time homebuyer tips: How to get that house

For those looking to buy a home, the U.S. housing market is more difficult than ever because mortgage rates are almost at a 23-year high, home prices are almost at an all-time high, and supply is scarce nationwide. Still, for consumers who are organized and diligent in their research, becoming a first-time homeowner might be a realistic ambition. Here are some money-saving tips that will help you get started on the right track toward becoming a house buyer.

 

House-hunting tips for first-time home buyers

1. Check your credit (and work on it)
Your mortgage interest rate will be better the higher your credit score.

Take out your reports.
Acquire a comprehensive understanding of your credit status and the reasons behind it by obtaining free credit reports from Equifax, Experian, and TransUnion. The president of Home Qualified, an online resource for homebuyers located in New York City, Ralph DiBugnara, advises looking for any errors or past-due bills that may have gone to collections. "These obligations may put obstacles in the way of your home loan application. If something is wrong, get in touch with the creditor to try to resolve it.

Restore your credit, then keep an eye on it.
Your available credit, including credit card limits, overdraft protection amounts, and any other lines of credit you may have, together with the portion of that credit you are currently using, play a major role in determining your credit score. Your credit utilization ratio, or how near to your credit limit your outstanding credit card balances are, is one important factor. It is calculated by dividing the total amount of credit you have by the total amount of debt you have on credit.

According to Lindsey Shores, assistant manager of real estate originations at Schools First Federal Credit Union in Sacramento, California, "your credit utilization ratio should be 30 percent or less." "Many people have to budget for and strive to pay down this amount to reach it." Try to pay off your balances if you have more than that amount.

As you move forward, concentrate on keeping them low. Additionally, you should make sure that you pay all of your bills on time because late payments hurt your credit score.

Monitor your credit on a regular basis using any of the many free services available, such as those provided by Bankrate and numerous banks. Additionally, you should think about signing up for a credit monitoring service if you haven't already. According to DiBugnara, "You'll get notified if there's suspicious activity on your report, or if your credit score changes."

2. Streamline your spending plan
According to Lauren Lindsay, an independent financial planner based in Houston, "One lesson from the [2008 housing] crash is that just because the bank approves you for a certain amount, it doesn't mean you can afford it."

Another thing to think about is that if you look for homes below your budget, you may be able to negotiate over the asking price in the event of a bidding war, which is not unheard of in the current market.

When creating your budget, consider not only the amount of housing you can afford but also the amount of ongoing expenses you will have to pay after you buy a property.

The three main monthly costs of homeownership are mortgage, insurance, and property taxes; however, you may also have to pay for utilities and possibly HOA dues. Additionally, it's a good idea to budget money regularly for upkeep and unforeseen repairs.

"Generally speaking, I advise clients to budget between one and three percent of their property's worth annually for housing-related expenses," says Pittsburgh-based Innovate Wealth managing partner and certified financial planner Steve Sivak. If the house you ultimately decide to purchase is larger, older, or has features like a pool that require a lot of upkeep, you may need to budget extra money.

3. Take into account your requirements and desires
Scouting neighborhoods should be done early in the process because it can take longer than you think to find the perfect place and address.

"Explore that region by car and foot at various hours of the day and night," advises Bill Golden, an associate broker and Realtor with Keller Williams Realty Intown Atlanta. "This will assist you in determining your preferences."

This is a good time to identify the neighborhood as well as refine your preferences for the actual house. What kind of home are you trying to find? What is it you can give up on? Which ones are absolute musts? Your list of needs and wants will be more informed if you consider the aspects of your current residence that you like and dislike.

4. Establish financial arrangements
You should be able to prove to prospective lenders that you have a steady source of income, regardless of your current income level.

According to Tom Hecker, a loan officer with Cherry Creek Mortgage in Greenwood Village, Colorado, "Lenders will scrutinize your income and how much you earn monthly. They will look for a two-year employment history and want to see consistent income—whether you're receiving a salary, hourly pay, or are self-employed."

If you work for yourself, expect more scrutiny than someone who receives a salary or hourly rate.

Mortgage lenders usually examine your bank statements for the previous two months in addition to your credit report when evaluating your application, taking into account your liquid assets and general financial well-being. Make sure to deposit any funds from other assets, like a gift for a down payment, into your checking or savings accounts before the 60-day period expires. This allows the money to "season."

Furthermore, DiBugnara advises against taking out new loans, credit accounts, or accruing additional debt at this time. Any of those actions might negatively impact your credit report.

Advice for selecting the ideal mortgage

5. Mortgage lenders that compare prices

You ought to be aware of the monthly payment you can comfortably afford, the areas you can afford, and the amount of down payment at this point. It's now time to start looking for a mortgage. Take into account these elements:

• Comparative analysis: Examine mortgage rates offered by at least three different mortgage providers in addition to various mortgage kinds.
• What other people are saying: To get an idea of what it's like to work with a particular lender, read online customer reviews.
• Relationships with the lender: DiBugnara notes that while "competitive rates and service are still available in this market," it is important to closely monitor the responsiveness and communication of lenders.
• The conditions of the mortgage: It's also a good idea to pay attention to all of the mortgage terms, not just the rates that lenders quote you. What late fees are there? What is the expected cost of closing? Is there a penalty for early payments? Will you receive a better deal if you can obtain a mortgage from the bank where you currently have accounts? Sometimes, if the other terms are better overall, it makes sense to go with a loan with a slightly higher rate.

6. Obtain preapproval
Upon selecting a lender, proceed to obtain preapproval for a mortgage. Your income and financial situation must be documented for this, so getting your paperwork organized beforehand can make the process go more smoothly.

A pre-approval is an official letter from a lender specifying exactly how much it will loan to you, as opposed to prequalification, which is an estimate of the size of the loan you will be able to get. Possessing a preapproval will make you more competitive when putting in an offer on a home, and it will streamline the process when it comes time to apply for a loan after your offer is accepted.

DiBugnara notes that preapprovals typically expire after 90 days, so find out from your lender how long theirs will last. To find problems to address, you might want to apply for preapproval as soon as possible if you're a first-time homebuyer with a lot of debt or mediocre credit.

Hecker advises following a budget and savings plan as well as making on-time payments on all debts after obtaining a preapproval. "Aim to avoid taking on additional debt or making any extraordinary purchases."

7. Seek assistance for a down payment.
Your down payment or closing costs may be covered by one of the numerous first-time homebuyer and down payment assistance programs available at the local, regional, and federal levels. These programs can place a cap on the price of the home and are usually only available to borrowers whose income falls below a given threshold (depending on their location).

Numerous state housing finance agency mortgages, intended for first-time homebuyers and those with low to moderate incomes, are paired with many of these programs. To be eligible for the help, which can come in the form of an outright grant, a low-rate or forgivable loan, or both, you usually have to be receiving one of these HFA loans. However, this isn't always the case.

Your loan officer will often be able to tell you about the various programs that are out there and what you might be able to combine with your mortgage.

Advice for purchasing your first house

8. Assist a real estate representative

Hiring a real estate agent or Realtor is the next step for first-time homebuyers after they have a preapproval letter in hand and their financing sorted out.

You can get advice on market conditions and whether the homes you want to make offers on are priced appropriately from an experienced real estate agent who is particularly knowledgeable about the area you're looking to buy in. In addition to advocating on your behalf during price and terms negotiations, your agent can spot possible problems in a neighborhood or house that you are unaware of.
Asking friends, family, or coworkers for recommendations is a good place to start. To get a sense of who might be a good fit in terms of expertise and personality, interview a few potential agents.

Golden advises against choosing an agent at random and instead suggests choosing one who works in the general area you're looking in and with whom you feel comfortable. "A good Realtor will stay on top of that and get you to see new listings as soon as they become available." Offers "come up every day."

9. Engage in negotiations with the vendor
Never be scared to haggle over a price with sellers, even when you've found the house of your dreams. Sure, it can be challenging in booming real estate markets, as we have seen over the last two years, but in certain regions of the nation, conditions are becoming more balanced between buyers and sellers as interest rates rise and sales decline.

Furthermore, it never hurts to inquire, particularly if the house has been listed for a while and you're a strong contender. Think about making a lower offer than the asking price or requesting concessions, like the seller paying a portion of the closing costs or repairs.

You can negotiate a better price if you can persuade the seller to accept some of these conditions.

10. Create a contract.
When you locate a property and get ready to submit an offer, be specific about any circumstances or terms that will let you back out of the agreement. These may include the home inspection turning up expensive problems or the denial of your mortgage application. Once your offer is accepted, you and the seller will sign a formal contract known as the purchase and sale agreement, which will include these contingencies. You will have an out if the transaction doesn't go as planned and will receive your earnest money deposit back if these terms are spelled out in writing with deadlines.


Before you close on the house, get quotes from contractors for any repairs or improvements the property might require if there is a problem, advises DiBugnara. You can budget for those costs and gain time to finish the work before moving in by conducting this research.

In Summary
First-time homebuyers may find the process intimidating and never-ending. However, you can maintain focus and complete the task at hand by breaking the process down into manageable steps and taking each one individually. Working with a reputable real estate agent and conducting your research beforehand will help you remain focused during the process. You can improve your chances of getting approved for a loan and obtaining your first house by maintaining stable finances and avoiding other large-scale purchases.