Top Tips for First-Time Homebuyers

Buying a home will be one of the largest purchases you make in your life, and may likely be the largest. Buying a home can be one of the most nerve-racking times as well. This is all multiplied if you are a first-time homebuyer. Even if you know what house you want, you might be wondering where do I go from here. The team here at Perfleek wants to help make your first-time home purchase as worry-free as possible. In this article, we are going to give you a few tips to help make the process a bit easier. 

SAVE!!!

The first thing you need to do as a first-time homebuyer is saving money, and a lot of it. The more you can put down as a downpayment, the better for your resulting mortgage. This will save you thousands in the end. There are more costs that come in addition to the down payment, like closing and move-in costs, that you will need to factor in when initially planning how much money you may need. However, do not spend all of your savings either because this could put you in a predicament down the road. Keep some savings on hand for unexpected situations that may arise. If you are unable to afford the down payment and the additional home-buying costs, while also keeping some funds on reserve for unexpected expenses, then it may be best to consider if this is the right time for you to buy a home or if you should wait. Click here to read more about deciding if buying or renting is the right choice for you.

Use Your Credit Score to Your Advantage

Building your credit can seem tedious with a long endgame, but the benefits pay off greatly in the long run. Let us look at this example to see the true effects that a credit score can have on a mortgage.

Borrower #1: Say borrower 1 has a FICO credit score of 680, which is considered fair. They are given a rate of 4% on a 30 year fixed mortgage of $200,000. Over the lifetime of the loan, it will cost them $343,739 or $955 a month, all before taxes, insurance, etc. 

Borrower #2: Say borrower 2 has a FICO of 760. They are given a rate of 3.5% on a 30 year fixed rate mortgage of $200,000. Over the lifetime of the loan, it will cost them $323,312 or $898 a month, all before taxes, insurance, etc. 

Simply by having a higher credit score, Borrower #2 paid $20,427 less than Borrow #1 over the course of the mortgage. 

Pick the Right Agent for You

Finding the right real estate agent can be intimidating, but the right agent will make the process a breeze while saving you a sum of money. If you feel overwhelmed on your search, be sure to ask your friends and family if they have any agents they recommend. When you meet with an agent, whether that is a video call or in-person, be sure to ask how they plan to help you with the process of buying a home. Take some time to write down what you want out of an agent, such as experience in representing a buyer through the home buying process (called a buyer’s agent) or responsiveness to your emails and calls. This will help you narrow your search and give you the confidence that your agent’s service approach will match your preferences.

Location, Location, Location   

Location has a large impact on the value of homes. However, it’s not just the neighborhood or city that affects the value. It could also be the location of the home within that particular neighborhood. Beyond the impact on value, location is also important when it comes to schools in the network, area safety, and attractions that may be of interest.

Understanding Mortgages & PMI

Mortgages are agreements between a borrower and a lender. Typically a bank gives money to the borrower to be able to buy a home. The lender will be part owner of the house until the amount that was borrowed plus interest is paid in full. Most mortgages are typically 15-30 year fixed rate loans. Unless you plan to buy a home outright with cash, mortgages are going to be critical to you. Most real estate agents suggest that you get pre-approved for a loan before starting your home search. This will help you gauge your financial standing and your ideal price range.

The money you have been saving for the down payment and the credit score you have been building will be the two big factors within your control that impact your mortgage rates. The conventional wisdom on mortgage down payments is that you pay 20% of the home’s value. This will lower the interest you pay on the mortgage, in the long run, give you more options, and allow you to avoid paying private mortgage insurance (PMI). PMI is an extra cost that the borrower pays when they put less than 20% down. In the case that the borrower defaults on the mortgage, the private mortgage insurance will pay a portion of that borrower's remaining balance. If you have to pay for private mortgage insurance, expect to pay around 0.5% - 1.0% of the loan amount per year, according to Rocket Mortgage. If it’s within your means, making a down payment of 20% to avoid the PMI is advisable. We strongly suggest that you consult with a lender for advice based on your financial situation.

Tax Credits/Deductions

Our final tip is to seek advice from your lender to see if there are any tax credits or rebates that are available at the time of your purchase. For example, first-time homebuyers in 2008-2010 had access to a $7,500 tax credit, which was later upped to $8,000. 

Conclusion

There is a lot to know when it comes to buying a home, and as a first-time homebuyer, it can seem daunting. However, with these tips, we hope you have a good grasp on how to get started and that you feel a bit more at ease having an idea of what to work towards and what to avoid. Because these are not the only points you need to know, we suggest that you seek the advice of an agent and a lender to navigate the home buying process with the best success.