5 Need To Know Tips for First-Time Home Buyers
The journey to home ownership is an exciting one, but there are several hurdles to
overcome, and preparedness often gets lost amid high emotions. While the home-buying
process is pretty straightforward, addressing certain details in advance can mean the
difference between getting that new home now or being forced to wait a few more years.
Future homeowners can avoid the pitfalls that commonly prevent the dream from
becoming a reality. Here are five tips for the first-time home buyer.
Check your Credit Score
A recent survey of potential homebuyers indicated that nearly half of the respondents
were forced to delay the purchasing a home until their credit scores were improved. The
first thing any potential home buyer must do is evaluate their credit report. Home buyers
should pull a copy from all three major reporting bureaus or obtain an all-in-one report.
Once they have this report, they should examine each item listed and identify any
questionable items or areas with potential for improvement. Paying off small debts and
making payments to bring credit card balances as close to zero as possible will
immediately work toward increasing the credit score.
Avoid Making Large Purchases
A number of factors make up a credit score. One of the primary determinants when
evaluating the creditworthiness of home loan applicants is their debt-to-income ratio. The
debt ratio is a borrower’s monthly debt expressed as a percentage of their income. 43
percent debt-to-income ratio is the highest ratio a borrower can have and still get a
qualified mortgage. Borrowers should pay down what they can and avoid making large
purchases.
Evaluate Assets and Cash-on-hand
The next step in the home buying preparedness is to determine how much money is
available to cover the down payment, closing costs, moving expenses, and any immediate
maintenance needs of the purchase property. Once they have arrived at this figure,
borrowers need to set saving goals accordingly. Most lenders require a 20 percent down
payment, which may vary based on the credit file report and loan product. Banks will
want to make sure at least that much is in the bank, and has been for more than 60 days.
Additionally, lenders want to see that home buyers have three to six months of reserves
set aside, enough to cover all of the bills and expenses for that time in case of a job loss.
Get a Pre-Qualification Letter from a Lender
Whenever an offer is submitted to a seller, the sellers’ first consideration is whether from
a buyer is qualified. Some real estate agents will not even accept an offer unless it’s
accompanied by a loan pre-approval letter. By contacting a loan officer and acquiring the
pre-qualification letter, prospective buyers can obtain the leverage needed to make an
offer and secure a contract.
While determining the eligibility, the loan officer will advise borrowers on the various loan programs
that are available. Shopping around and comparing rates and terms of the
different programs is another essential step. And borrowers should not limit their focus
only to the mortgage rate and interest costs. They should also inquire about related
expenses such as mortgage insurance, property insurance, and taxes, as well as appraisals,
surveys, and home inspections.
Find a Good Real Estate Agent
Hiring a real estate agent to help navigate the home-selection process is a no-brainer for
first-time home buyers. Real estate agents have access to the real estate listings for sale,
which allows them to eliminate a lot of the time and stress associated with house hunting.
They can also narrow a search to comply with the borrowers’ price range, neighbourhood
preference, and even square footage needs. The broker will act as a resource for
questions, ensure that the selection process runs smoothly, and they will also write,
submit, and negotiate the offers on behalf of the buyers.
The path to home ownership can be challenging to navigate, but by eliminating the
barriers, it can be a rewarding. Once potential homeowners check their credit score, avoid
large purchases, evaluate their assets, get pre-qualified by a qualified lender, and find a
good real estate agent, they will have successfully avoided the disappointments that have
plague many first-time buyers.
