3 Tips First-Time Home Buyers Should Know

Dated: December 1 2020

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3 Tips First-Time Home Buyers Should Know

Buying a home is a dream for many people, but for many first-time buyers, the process can feel overwhelming. After all, a home is probably the biggest purchase you’ll ever make. It’s important to make sure that you have all of your ducks in a row before you start your search and consider putting in an offer.

1. Plan to Save More Than You Think

Many first-time buyers make the mistake of assuming they only need money for a down payment on a home. But there are other expenses that you’ll need to consider, which means that you’ll need to plan to save more than you think.

Here are the main costs associated with buying a home:

  • The down payment: The size of your down payment will depend on your lender and the type of mortgage you choose. If you have excellent credit, you may be able to get a conventional mortgage with just 3% down. Still, that can be a hefty sum to save. The median home price in the U.S. was $324,900 in Q3 2020, so a 3% down payment would be $9,747.

  • Closing: These are fees associated with finalizing the mortgage, and they range from 2% to 5% of the loan amount. Using the median sale price example, you would be looking at closing costs of $9,634 to $16,057. Depending on your situation, you may be able to ask the seller to cover some of the closing costs or roll some of the costs into your mortgage.

  • Moving: Don’t forget to consider the costs of moving. Make sure you have enough money to hire movers, make home repairs and purchase any furniture that you may need.

2. Check Your Credit 

Before you even start looking for a home, check your credit to see where you stand. Your credit score will determine your interest rate and whether you qualify for a mortgage. 

  • Every American is entitled to a free credit report from each of the three credit bureaus. Take advantage of this to see your credit history and dispute any errors that may be hurting your score.

  • Continue to pay your bills on time and pay off as much credit card debt (or other debt) as possible.

  • Keep your credit card accounts open. Closing them will only reduce your total amount of available credit, which can hurt your score.

If you already have excellent credit, then you may not need to take any extra steps here. If your score is lower than you expected, it’s worth the effort to improve your credit before you take the next step in buying a home.

3. Get Pre-Approved Before You Start Looking

In today’s red-hot market, sellers want to deal with serious buyers. The best way to show how serious you are about buying a home is to get pre-approved for a mortgage before you even start looking. 

A preapproval letter shows that the lender is willing to offer you a loan up to a certain amount. 

If you’re a first-time home buyer, these three tips can help ensure that you’re ready to buy a home and that you purchase a home you can truly afford.

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