Purchasing a new home is a big financial step especially for a first time home buyer. There are many factors to consider before purchasing a new home such as the right neighborhood and the price point you can truly afford. The average person rarely ever pays cash for such a big purchase. Most home buyers take out a mortgage to purchase a house. For first time home buyers, this can be quite overwhelming but if you take these 5 tips into consideration the process can become less daunting.
First and foremost know your credit score. The better your credit score the better rates you are able to obtain. Before applying for a loan have the minimum credit score conventional mortgages require. According to Experian, when obtaining most conventional mortgages a required minimum credit score of 620 is acceptable. If your credit is below what a mortgage requires, take time to build your credit score. Remember your credit score will impact the mortgage you can obtain. The better the score the better the mortgage. This is important because the lower the interest rate the more money you will save in the long term.
There are many upfront expenses when purchasing a home. Even if you obtain a mortgage, you will still need cash. Mortgage lenders will require you to have a down payment at closing. A standard down payment is usually 5% of the cost of your home but there are lenders who do require a higher downpayment. Before you can make an offer on a home, determine your target price range. Once that is settled, start saving for the down payment. The more you put down at first the more you will save on your mortgage. You will owe less interest on the life of the mortgage. A bigger down payment will also save you from PMI(private mortgage insurance). If your downpayment is less than 20% of the purchase price, you will be required to purchase PMI.
Third, is know your monthly payment. Make sure you can afford your mortgage along with all your other monthly expenses. A mortgage payment is not just based off the price of the home. Typically a lender requires you to pay real estate taxes and homeowners insurance included in the mortgage payment. The lender will hold these funds in escrow until the real estate taxes and homeowners’ insurance are due.
Just like anything else you can shop around for the best interest rate. Lender institutions want your business so they compete with each other to give the best incentives. Take time to shop around and compare what each lender has to offer. Remember the better credit score gets the best rates. If there is room to improve your credit score do so. Paying down debts is a great way to improve your score. It is important to be comfortable with the mortgage package you commit to because you will be stuck with it for a long time. Mortgages are usually based on a 15 or 30-year loan.
The final point is to take your time and plan ahead. This is one of the biggest decisions you will make in your lifetime. If you plan ahead the process will go much smoother. Before purchasing a home make sure you are financially stable so that you will be able to enjoy homeownership for years to come.
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