Tips & Tricks
Tips And Tricks For First Time Home Buyers
Purchasing a home can be an exciting experience for everyone. However, you will encounter many new processes and need a few tips for first-time home buyers. One of the most difficult obstacles is saving enough money for a down payment. Borrowers with traditional mortgages are typically required to pay 20% of the home’s purchase price upfront. Many first-time homebuyers find it difficult, if not impossible, to come up with a 20% down payment.
Moreover, first-time homebuyers are the wrong borrowers for risky loans. How to find a lender who can deliver the best interest rates and limited fees? You need to consider because you may not afford the mortgage payments when the interest rates rise.
1. Tips for first-time home buyers
Here are some tips that are useful for first-time homebuyers:
1.1. Identify your current needs:
Knowing what you need for a home will help you identify the most important features to look for when viewing properties.
1.2. Explore mortgage options:
When it comes to home financing, it’s critical to consider all of your options. There are several different types of mortgages:
- Open/Closed mortgage:
- An open mortgage allows you to make occasional or full prepayments without any charge.
- A closed mortgage cannot be prepaid, refinanced, or renegotiated before maturity.
- A conventional mortgage requires a down payment of at least 20% of the home’s purchase price.
- If you don’t have 20% of the down payment and need to borrow more than 80% of the total amount, you’ll need to apply for a high-ratio mortgage.
- Fixed-Rate/Variable Rate:
- With a fixed-rate mortgage, the interest rate will remain constant throughout the term of your loan.
- With a variable rate mortgage, your interest rate will change when the Mortgage Prime Rate changes.
The best way is to work with an experienced loan officer who asks the right questions and finds loans that are right for you.
1.3. Start savings as soon as possible:
To help you reach your goal, start saving by cutting expenses and creating a budget. The following are the most important costs to consider when saving for a house:
– Down payment: Your down payment requirement will vary depending on the lender and the type of mortgage you choose. Some conventional loans for first-time home-buyers with good credit allow for as little as a 3% down. However, even a small down payment can be challenging for you to save.
For instance, a 3% down payment on a $300,000 home is $9,000. To get started, use a calculator to determine a goal and then set up automatic transfers from checking to a savings account.
– Closing costs: These are the expenses you need to pay to finalize your mortgage, which typically ranges between 2% and 5% of the loan amount. You can request that the seller pay a portion of your closing costs, and you can save money on certain expenses, such as home inspections, by shopping around.
– Move-in expenses: After you’ve purchased a home, you’ll need some cash. Make a budget for immediate home repairs, upgrades, and furnishings.
1.4. Find the correct lender:
There are various types of lenders:
- Direct Lenders: Banks, online entities, credit unions, and other organizations that provide mortgages directly to consumers are referred to as direct lenders.
- Mortgage brokers: Mortgage brokers are independent and licensed professionals who help borrowers and lenders find each other.
- Correspondent lenders: Correspondent lenders originate and fund their loans. But after the loan closes, they quickly sell them to larger lending institutions on the secondary mortgage market.
- Wholesale lenders: Unlike direct lenders, wholesale lenders do not interact with borrowers. They often work with mortgage brokers to offer their loan products at discounted rates, and they rely on brokers to assist borrowers in applying for a mortgage and working through the approval process.
- Portfolio lenders: Portfolio lenders originate and fund loans from their clients’ bank deposits in order to keep the loans and not resell them after closing. Community banks, savings and loans institutions, credit unions are examples of portfolio lenders.
- Hard-money lenders: Private investors (individuals or groups) who provide short-term loans secured by real estate are referred to as hard money lenders.
A suitable lender will be a valuable resource for home-buying education and professional recommendations. Keep in mind to consult with multiple lenders for the best deals.
1.5. Choose an experienced real estate agent:
Look for real estate agents who are knowledgeable about the current housing market. Request recommendations from family, trusted friends, and coworkers, then talk with several agents.
1.6. Pay attention to other expenses:
Other expenses like loan fees, appraisal fees, or title search fees are worthy of attention. Here are the costs for first time home buyers (from ally.com):
2. Learn more about the First Time Home Buyer Program
“First Time Home Buyer Program” is designed to assist you in many aspects. The benefits include making your home more affordable, providing more funding options, and so on.
- Special loans program for first-time homebuyers
- Reduced down payment from $0 to 3%
- Low-income first-time homebuyers may qualify for subsidized interest programs.
As a first-time homebuyer, shopping for a house can be overwhelming. You can avoid common first-time homebuyer mistakes by following the guidelines mentioned above and joining the First Time Home Buyer Program.
The article outlined tips for first-time home buyers. The better you prepare, the faster you will be able to move to get your dream home. When you’re ready to buy, speak with a lender right away to establish a budget and determine how much money you’ll need. If you follow these tips, you’ll have a much better chance of succeeding as a first-time home buyer.
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